Would Peter Lynch Buy Osim International?

osimlogoPeter Lynch’s investing track record speaks for itself. During his time at the helm of Fidelity’s Magellan Fund, he delivered an annual average return of 29% over 13 years. To put that into context, $10,000 invested in his fund in 1977 would have turned into $270,000 by 1990.

Lynch has some very clear ideas about investing. He would never invest in longshots; he would never try to predict the economy and interest rates and, perhaps more importantly, he would only invest in what he knew.

So what would Peter Lynch make of Osim International (SGX: O23)?

Osim’s business model is fairly straight forward. The company focusses on healthy lifestyle products. So, that should pass Lynch’s stringent test for an easy-to-understand company. Its primary business is the sale of massage chairs and fitness equipment. But it is also involved in the distribution of nutritional supplements through GNC, and the sale of various teas and infusions through its TWG outlets.

Lynch also likes smaller companies. In other words, he would home in on companies with low market caps. His rationale for doing so was quite simple – he wanted to get in before others climbed on board. In that regard, Osim is still relatively small. However, with a market cap of $1.6b, it is not exactly a tiddler. That said, it is still only about a twelfth of the median size of the 30 companies that make up the Straits Times Index (SGX: ^STI).

Another of Lynch’s criteria is an adequate payout ratio. In the case of Osim, it pays out between a quarter and third of profits as dividends. But more importantly, since the company paid its maiden dividend in 2009, it has increased the payout sequentially. Typically, Lynch would be looking for long records of regularly raising dividends, which Osim hasn’t quite achieved yet.

While dividends are great, Lynch is mainly a growth investor. He is not averse to a high valuation, provided he believes that the price is justified by the prospective growth of business. Currently, Osim is valued at around 18 times earnings. Meanwhile, earnings have been growing at around 40% over the last four years, which is impressive.

More recently, growth has slowed to around 20% a year. That would still put Osim into Lynch territory, but provided the company can continue to grow at that rate.

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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.