Cavco Industries (CVCO): A GARP Gem in a Rocky Market

The stock market's volatility has left many investors searching for companies that balance growth with reasonable valuations—a hallmark of Peter Lynch's Growth at a Reasonable Price (GARP) strategy. Cavco Industries (CVCO), a leader in factory-built housing and financial services, fits this mold. Despite its recent rise—up 34% over the past year—its fundamentals align with GARP principles: strong earnings momentum, a favorable PEG ratio, robust returns on capital, and minimal debt. Let's dissect why Cavco could be a compelling hold or buy-the-dip candidate.

The GARP Case for Cavco

1. Explosive Earnings Growth
Cavco's diluted EPS has grown at a 20.7% compound annual growth rate (CAGR) over the past five years, driven by rising demand for affordable housing and strategic acquisitions. While annual results saw a dip in FY 2023 ($18.37) after a post-pandemic surge, the trend has rebounded strongly, reaching $20.71 in FY 2025. This trajectory reflects Cavco's ability to capitalize on its 16,753-unit shipment record and its position as a consolidator in fragmented markets.

2. A PEG Ratio That Justifies the Price
Cavco's PEG ratio of 0.97 suggests its price aligns with its growth rate. At a P/E of around 18x trailing EPS, the stock isn't cheap, but Lynch would argue that earnings growth justifies the premium. With a 20.7% EPS CAGR and analyst estimates of continued expansion, the PEG ratio underscores that Cavco is priced for success, not speculation.

3. ROIC: A Lynch Favorite Metric
Lynch prioritized companies with high returns on invested capital (ROIC) exceeding their weighted average cost of capital (WACC). Cavco's TTM ROIC of 18.7% comfortably beats its WACC of 13.9%, signaling efficient capital deployment. This metric matters: companies that consistently generate ROIC above WACC create shareholder value, a key Lynch criterion.

4. Debt-Free, Cash-Rich Balance Sheet
With $330.9 million in net cash (or $40.91 per share) and a debt-to-equity ratio of just 0.04, Cavco's financial fortress insulates it from macro risks. Its interest coverage ratio of 387x highlights minimal debt stress, even in a high-rate environment. This stability is critical for investors wary of economic slowdowns.

Addressing Concerns: Volatility and Valuation

Cavco's beta of 1.15 means it's 15% more volatile than the broader market—a red flag for some. Yet Lynch often embraced volatility in companies with durable growth. Cavco's beta is a reflection of its cyclical exposure to housing markets, but its net cash position and operating cash flow of $178.5 million (TTM) mitigate downside risks.

Critics might argue the stock is overvalued at $457 (as of June 2025), especially given its 34% YTD rise. However, Lynch's GARP framework demands comparing growth to valuation. With a PEG <1, the stock isn't overpriced relative to its growth rate. Analysts, too, see upside: the average price target of $522.50 implies a 14% premium, suggesting the Street still sees room for growth.

Why Lynch Would Buy the Dips

Lynch famously sought companies with “a catalyst for future growth” and “a price that leaves room for error.” Cavco checks both boxes:
- Catalyst: The U.S. affordable housing shortage remains acute, and Cavco's factory-built homes offer a scalable solution. Its financial services arm further monetizes its customer base.
- Margin of Safety: The net cash position and low debt mean even a severe downturn would leave Cavco financially intact.

Investment Thesis

Cavco is a GARP standout: it combines high growth (20%+ EPS CAGR), value (PEG <1), and safety (cash-rich balance sheet). While its beta suggests it will move with the market, its fundamentals justify holding through volatility. For Lynch-style investors, Cavco's dips—especially during market selloffs—should be viewed as buying opportunities.

Final Take: Cavco Industries is a rare blend of growth and value in today's market. At current levels, it's fairly priced, but its robust metrics and secular tailwinds make it a stock to own for the long haul. As Lynch might say: “Buy it when the price is right, and hold it when it's not.”