There are some investors who believe growth is important as long as you do not pay too much for it. They are looking for the union of growth and value in stocks when they screen the market.
Below are the five common fundamental indicators that "growth at a reasonable price," aka "GARP" investors, refer to when they evaluate the outlook of a stock:
- Trailing 12-month and forward PEG ratios less than or equal to 2.
- A more than 5% yearly average increase in the trailing 12-month net income margin over the past five years.
- Earnings are projected to increase more than 10% every year for the next five years.
- A positive trend in trailing 12-month operating income over the past five years.
- A price-earnings ratio less than or equal to 25.
Thus, GARP investors may want to consider the following stocks, as they meet the above criteria.
Ternium SA
The first stock GARP investors may want to consider is Ternium SA (TX, Financial), a Luxembourg-based producer of various steel products primarily for sale in the U.S. and Mexico.
The stock closed at $48.98 per share on Monday for a market cap of $9.62 billion and a price-earnings ratio of 6.92. The trailing 12-month PEG ratio was 0.51 and the forward PEG ratio was 0.27, based on a past five-year Ebitda growth rate of 13.70% and a projected five-year earnings per share growth rate of 26.17%.
The net income margin (18.56% as of the March 2021 quarter) increased by about 85.5% per annum over the past five years, while the operating income ($1.85 billion as of the March 2021 quarter) increased by 6.40% per annum over the same period.
GuruFocus assigned the company a financial strength rating of 6 out of 10 and a profitability rating of 7 out of 10.
The share price has risen by 222.02% over the past year, fluctuating in a 52-week range of $14.47 to $50.39.
Tempur Sealy International Inc
The second stock GARP investors may want to consider is Tempur Sealy International Inc (TPX, Financial), a Lexington, Kentucky-based manufacturer and distributor of bedding products in North America and internationally.
The stock closed at $42.60 per share on Monday for a market cap of $8.39 billion and a price-earnings ratio of 21.60. The trailing 12-month PEG ratio was 1.52 and the forward PEG ratio was 0.60, based on a past five-year Ebitda growth rate of 11% and a projected five-year EPS growth rate of 27.90%.
The net income margin (12.04% as of the June 2021 quarter) rose by 23% per annum over the past five years, while the operating income ($760 million as of the June 2021 quarter) increased by about 9.30% per annum.
GuruFocus assigned the company a financial strength rating of 4 out of 10 and a profitability rating of 8 out of 10.
The share price has increased by nearly 106% over the past year, fluctuating in a 52-week range of $19.87 to $43.99.
Oshkosh Corp
The third stock that GARP investors may want to consider is Oshkosh Corp (OSK, Financial), an Oshkosh, Wisconsin-based designer, builder and seller of specialty vehicles and vehicle bodies.
The stock closed at $117.54 per share on Monday for a market cap of $8.07 billion and a price-earnings ratio of 23.15. The trailing 12-month PEG ratio was 1.50 and the forward PEG ratio was 0.69, based on a past five-year Ebitda growth rate of 11.20% and a projected five-year earnings per share growth rate of 24.26%.
The net income margin (9.68% as of the June 2021 quarter) rose by nearly 11% per annum over the past five years, while the operating income ($568 million as of the June 2021 quarter) rose by about 13.20% per annum.
GuruFocus assigned a financial strength rating of 6 out of 10 and a profitability rating of 7 out of 10 to the company.
The share price has gained 49.50% over the past year, fluctuating in a 52-week range of $66.74 to $137.46.
Disclosure: I have no positions in any securities mentioned in this article.
