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Would Peter Lynch Buy Biosensors International?

BiosensorsPeter Lynch and Warren Buffett could not be more different in their investing approaches. And yet the two legendary investors have separately achieved remarkable returns from their respective investments.

What is even more amazing is that the two investors have openly shared their investing secrets. They have almost provided us with a blueprint of how they go about making their stock selections.

So what would Peter Lynch make of Biosensors International (SGX: B20)?

Lynch liked smaller companies. In other words, he wanted to get in before other investors jumped onto the bandwagon. In the case of Biosensors, it is valued at around $1.5b, which suggests that it might still be small enough to grow. By way of comparison, the smallest company in the Straits Times Index (SGX: ^STI), Olam International (SGX: O32) is almost twice the size.

Lynch also warmed to companies that were easy to understand – these are the ones that you could ask your neighbour about. This is where Biosensor might not fare too well. Stent making and medical devices, which are Biosensors bread-and-butter products, can hardly be easily illustrated with a crayon. That said, a few PowerPoint slides might just do the trick, though.

If there was one thing that would grab Peter Lynch’s attention, it would be growth. In the case of Biosensors, its top-line revenue has grown from $52m in 2007 to $417m last year. That equates to an annual growth rate of over 40%, which would definitely put the company into the strong-growth camp.

Lynch also liked to see profit growth. Typically, he would look for companies that could grow profits at around 15% a year. Biosensors has swung from a bottom-line loss of $55m in 2007 to a profit of $143m last year. Over the most recent four years, operating profit has been growing at around 40% a year.

Apart from profit growth, Lynch also liked companies that had bags of cash on the books and abhorred those that were burdened by lots of debt. In this regard, Biosensors looks interesting. With $643m in cash and total debt of $345m, it has net cash $299m.

Lynch also doesn’t like overpaying for a stock. This is where things get a little tricky. Biosensors is valued at 15 times historic earnings, which is more expensive than the market average. But if it can grow at more than 15% a year, the current valuation might not look too unreasonable a few years down the road.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.