Actuant (NYSE:ATU) has several traits of a classic Peter Lynch pick. The company is involved in a range of businesses, from engineering hydraulic systems to selling industrial tools and electrical products -- in other words, it's boring. It's also underfollowed, and it has a long history of market-smashing returns. Further, with a relatively low market cap of $1.3 billion, the company doesn't attract much attention from the big boys on Wall Street.

If the company keeps posting numbers like yesterday's, though, it won't be long before its market cap will be within range of the institutional investors. Third-quarter revenues were up 38% over last year's Q3, while diluted earnings per share came in at $0.68, easily beating management's estimates.

These numbers also surpassed the company's aggressive goals for long-term growth. The strategy is to achieve 15%-20% growth in diluted earnings per share through a combination of internal growth and acquisitions. That means the company is continually buying up related businesses and using cash flows from existing operations to pay down debt.

But although this strategy keeps the company's cash working hard, it also provides additional risks for investors. One worry with acquired growth is whether the company might be overpaying. Another one is that more debt means more downside when the economy dips and sales slow. Third-quarter operating income could have covered interest payments seven times over, but financial situations can change quickly. Consider that the company holds $477 million in debt, giving it a long-term debt-to-equity ratio of 2.08. For comparison, competitors such as Eaton (NYSE:ETN), Kennametal (NYSE:KMT), and Parker (NYSE:PH), have debt-to-equity ratios of 0.59, 0.47, and 0.29, respectively.

When valuing a company like Actuant, calculating returns on its continuously invested cash is critical. Neglect to consider the company's acquisition costs, and what appears to be growing earnings could easily be masking value destruction. Time will tell whether that's the case with Actuant's aggressive growth strategy. Keep an eye on what happens.

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Fool contributor Matt Thurmond owns no shares in any company mentioned in this article.