Fuqi (FUQI): Peter Lynch jewel?

In his Validea newsletter, John Reese assesses Fuqi Int'l (NASDAQ: FUQI), a designer of jewelry in China,on the long-term investment strategy 0f the legendary investor Peter Lynch.

"According to the Lynch model, this company would be categorized as a fast grower.

"The Lynch strategy suggests that investors should examine the P/E (10.82) relative to the growth rate (42.99%), based on the average of the 3, 4 and 5 year historical eps growth rates, for a company.

"This is a quick way of determining the fairness of the price. In this particular case, the P/E/G ratio for FUQI (0.25) is very favorable.

"This 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.

"The Lynch also 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 FUQI is 43.0%, based on the average of the 3, 4 and 5 year historical eps growth rates, which is considered 'OK'.

"This methodology would consider the Debt/Equity ratio for FUQI (19.97%) to be acceptable (equity is three to ten times debt). This ratio is one quick way to determine the financial strength of the company."
 

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