There are some investors who believe growth is important, but do not want to pay too much for it. As a result, they are looking for stocks in which growth and value are working together, laying a strong foundation for an investment they hope will be successful.
Five common fundamental indicators that growth at a reasonable price, or GARP, investors refer to when assessing a stock's prospects are:
- Trailing 12-month and forward PEG ratios less than or equal to 2.
- An average annual net income margin growth rate of more than 5% over the past five years.
- Annual profit is projected to increase by more than 10% every year for the next five years.
- A positive trend in annual operating income over the past five years.
- A price-earnings ratio of less than or equal to 25.
Thus, GARP investors may want to consider the following stocks, since they meet the above criteria.
Alphabet
The first stock GARP investors may want to consider is Alphabet Inc. (GOOGL, Financial), a Mountain View, California-based tech conglomerate.
The stock closed at $2,554.29 per share on Tuesday for a market cap of $1.70 trillion and a price-earnings ratio of 22.81. The trailing 12-month PEG ratio was 0.85 and the forward PEG ratio was 1.14, based on the past five-year Ebitda growth rate of 26.70% and the projected five-year earnings per share growth rate of 20%.
The annual net income margin increased 32.22% per year over the past five years (fiscal 2017 through fiscal 2021), while annual operating income grew 32.16% per year over the same period. For fiscal 2021 (which ended Dec. 30), the annual net profit margin was 33.77%, while the annual operating income was $78.714 billion.
The share price has risen 14.56% over the past year, fluctuating within a 52-week range of $2,193.62 to $3,030.93.
On Wall Street, the stock has a median recommendation rating of buy. The average target price is $3,462.95 per share.
Micron Technology
The second stock GARP investors may want to consider is Micron Technology Inc. (MU, Financial), a Boise, Idaho-based semiconductor manufacturer.
The stock closed at $71.96 per share on Tuesday for a market cap of $81.99 billion and a price-earnings ratio of 9.23. The trailing 12-month PEG ratio was 0.50 and the forward PEG ratio was 0.31, based on the past five-year Ebitda growth rate of 18.40% and the projected five-year earnings per share growth rate of 29.65%.
The annual net income margin increased 14.74% per year over the past five years, while annual operating income grew 41.75% per year over the same period. At the end of fiscal 2021 (ended Sept. 2), the annual net income margin was 21.16%, while the annual operating income was $6.8 billion.
The share price has fallen by 19.18% over the past year, fluctuating within a 52-week range of $65.67 to $98.45.
On Wall Street, the stock has a median recommendation rating of buy. The average target price is $114.91 per share.
