Argan: A Peter Lynch Play

Focus: ENERGY

John Reese Image John Reese Founder and CEO, Validea.com And Validea Capital Management

However an increase of up to 5% is considered bearable if all other ratios appear attractive. Inventory to sales for AGX was 0.99% last year, while for this year it is 0.47%. Since inventory to sales has decreased from last year by -0.51%, AGX passes this test.

EPS GROWTH RATE: PASS

The Lynch growth methodology favors companies that have several years of fast earnings growth, as these companies have a proven formula for growth that in many cases can continue many more years.

This methodology likes to see earnings growth in the range of 20% to 50%, as earnings growth over 50% may be unsustainable. The EPS growth rate for AGX is 32.5%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is acceptable.

TOTAL DEBT/EQUITY RATIO: PASS

This methodology would consider the Debt/Equity ratio for AGX (0.00%) to be wonderfully low (equity is at least ten times debt). This ratio is one quick way to determine the financial strength of the company.

NET CASH POSITION: PASS

Another bonus for a company is having a Net Cash/Price ratio above 30%. Lynch defines net cash as cash and marketable securities minus long term debt.

According to the peter Lynch methodology, a high value for this ratio dramatically cuts down on the risk of the security. The Net Cash/Price ratio for AGX (52.64%) is considered very favorable.

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