Applied Materials Inc (NASDAQ:AMAT) Fits Peter Lynch’s Growth at a Reasonable Price (GARP) Strategy

Peter Lynch’s investment strategy, described in _One Up on Wall Street_, centers on finding companies with steady growth at fair prices, commonly known as the Growth at a Reasonable Price (GARP) method. The approach prioritizes solid fundamentals, earnings strength, and financial stability while steering clear of overvalued or highly indebted firms. Applied Materials Inc (NASDAQ:AMAT [https://www.chartmill.com/stock/quote/AMAT]) appears to align with this strategy based on key screening factors.
[Applied Materials Inc (AMAT) stock chart]

WHY AMAT MATCHES THE PETER LYNCH STRATEGY

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EARNINGS GROWTH (EPS 5Y: 23.2%)
Lynch looked for firms with steady earnings growth between 15% and 30%, as extremely high growth can be hard to maintain. AMAT’s five-year EPS growth of 23.2% fits this range, showing solid yet sustainable progress. The company’s semiconductor equipment business has gained from long-term industry trends, such as the need for advanced chipmaking tools.

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FAIR VALUATION (PEG RATIO: 0.74)
The PEG RATIO (Price/Earnings to Growth) adjusts the P/E ratio for growth, with a figure below 1 indicating the stock might be undervalued compared to its earnings potential. AMAT’s PEG of 0.74 suggests its growth outlook isn’t fully priced in—a key trait of Lynch’s preferred stocks.

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HIGH PROFITABILITY (ROE: 35.6%)
Return on Equity (ROE) shows how well a company turns shareholder equity into profits. AMAT’s 35.6% ROE surpasses Lynch’s 15% benchmark and ranks among the best in its sector, reflecting efficient capital use and strong operations.

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MODERATE DEBT (DEBT/EQUITY: 0.33)
Lynch favored firms with low debt, ideally a Debt/Equity ratio under 0.25. While AMAT’s 0.33 is slightly higher, it stays below the screener’s 0.6 cap and points to a stable financial setup. The company’s solid free cash flow relative to debt (Debt/FCF: 1.07) also lowers risk.

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LIQUIDITY AND STABILITY (CURRENT RATIO: 2.46)
A Current Ratio above 1 means a company can cover short-term bills. AMAT’s 2.46 shows good liquidity, though it’s a bit below some peers—a gap balanced by its strong earnings and financial health.

ADDITIONAL STRENGTHS BEYOND THE SCREEN

Our fundamental analysis report [https://www.chartmill.com/stock/quote/AMAT/fundamental-analysis] gives AMAT a SCORE OF 7/10, noting:

* EXCEPTIONAL PROFITABILITY: Leading margins (Operating Margin: 29.7%) and ROIC (27.9%) put AMAT at the top of its field.
* SOUND FINANCIALS: A high Altman-Z score (9.61) and controlled debt levels cut bankruptcy concerns.
* FAIR PRICING: While the P/E (17.09) seems high alone, it’s reasonable compared to peers and backed by growth.
* DIVIDEND GROWTH: A small but rising dividend (5-year CAGR: 12%) with a safe payout ratio (~19%).

SECTOR TRENDS AND CHALLENGES

AMAT works in the SEMICONDUCTOR EQUIPMENT industry, a key part of global tech infrastructure. Long-term demand comes from AI, IoT, and advanced manufacturing. Still, shifts in semiconductor spending and supply-chain risks need watching.

FINDING MORE PETER LYNCH PICKS

For those searching for similar stocks, our Peter Lynch Stock Screener [https://www.chartmill.com/stock/stock-screener?sid=685&f=sl_eps5y_15_30,sl_roe_15_X,sl_peg5_X_1,sl_cr_1_X,sl_deq_X_0.6,v1_50b100&v=19&s=fa&sd=DESC&cpl=2&bc=false&nw=1&o1=3&op1=200,16711680&o2=3&op2=50,255&o3=1] offers a filtered list of firms meeting these standards.

_Disclaimer: This analysis is not investment advice. Do your own research or consult a financial advisor before investing._