There are investors who believe growth is very important as long as you do not pay too much for it. Such investors are looking for the union of growth and value in stocks when screening the market.
Below are listed the five most-used fundamental indicators that "growth at a reasonable price" investors refer to when assessing the equity of a stock.
- Trailing 12-month and forward PEG ratios no higher than 2.
- A more than 5% yearly average increase in the trailing 12-month net income margin over the past five years.
- Earnings for the next five years projected to increase more than 10% annually.
- A positive trend in trailing 12-month operating income over the past five years.
- A price-earnings ratio no higher than 25.
These indicators suggest investors should increase their positions in the following stocks.
HCA Healthcare
The first stock GARP investors may want to consider is HCA Healthcare Inc. (HCA, Financial), a Nashville, Tennessee-based provider of medical care services in the U.S.
The stock closed at $187.19 per share on Monday for a market cap of $63.07 billion and a price-earnings ratio of 17.13. The trailing 12-month PEG ratio was 1.71 and the forward PEG ratio was 1.40, based on a past five-year Ebitda growth rate of 10% and a next five-year earnings per share growth rate of 12.25%.
The net income margin (7.28% as of the December 2020 quarter) rose by 5.7% per annum over the past five years, while the operating income ($7.262 billion as of the December 2020 quarter) rose by 4.5% per annum over the same period.
GuruFocus assigned a financial strength rating of 4 out of 10 and a profitability rating of 9 out of 10.
The share price increased by 108.34% over the past year, fluctuating in a 52-week range of $79.74 to $194.01.
On Wall Street, as of March, the stock has a median recommendation rating of buy with an average target price of $194.85 per share.
Align Technology
The second stock GARP investors may want to consider is Align Technology Inc, (ALGN, Financial), a San Jose, California-based designer and marketer of medical devices for the dental industry.
The stock closed at $516 per share on Monday for a market cap of $40.83 billion and a price-earnings ratio of 22.98. The trailing 12-month PEG ratio was 1.03 and the forward PEG ratio was 0.81, based on a past five-year Ebitda growth rate of 22.30% and a next five-year EPS growth rate of 28.41%.
The net income margin (71.84% as of the December 2020 quarter) rose by 24.2% per annum over the past five years, while the operating income ($387.17 million as of the December 2020 quarter) rose by 18.9% per annum.
GuruFocus assigned a financial strength rating of 7 out of 10 and a profitability rating of 9 out of 10.
The share price has gained 196.64% over the past year, fluctuating in a 52-week range of $150.38 to $634.46.
On Wall Street, as of March, the stock has a median recommendation rating of overweight with an average target price of $610 per share.
Laboratory Corp of America Holdings
The third stock that GARP investors may want to consider is Laboratory Corp of America Holdings (LH, Financial), a Burlington, North Carolina-based independent clinical laboratory company.
The stock closed at $251.58 per share on Monday for a market cap of $24.55 billion and a price-earnings ratio of 15.91. The trailing 12-month PEG ratio was 1.21 and the forward PEG ratio was 1.46, based on a past five-year Ebitda growth rate of 13.20% and a next five-year earnings per share growth rate of 10.93%.
The net income margin (11.13% as of the December 2020 quarter) rose by 10.2% per annum over the past five years, while the operating income ($2.948 billion as of the December 2020 quarter) rose by 15.4% per annum.
GuruFocus assigned a financial strength rating of 5 out of 10 and a profitability rating of 9 out of 10 to the company.
The share price has risen by 99.10% over the past year, fluctuating in a 52-week range of $110.40 to $254.91.
On Wall Street, as of March, the stock has a median recommendation rating of buy with an average target price of $270.50 per share.
Disclosure: I have no positions in any securities mentioned in this article.
Read more here:
- A Trio of Defensive Stocks for the Value Investor
- 3 High Ebitda Margin Ratio Stock Picks
- 3 Stocks With a History of Operating Income Margin Growth
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