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 work 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.
JELD-WEN
The first stock GARP investors may want to consider is JELD-WEN Holding Inc. (JELD, Financial), a Charlotte, North Carolina-based designer and manufacturer of doors, windows and walls. Its products are used in new buildings for single and multi-family houses and nonresidential buildings.
The stock closed at $10.03 per share on Friday for a market cap of $845.12 million and a price-earnings ratio of 7.32. The share price has dropped 59.88% over the past year, fluctuating within a 52-week range of $9.64 to $28.29.
The trailing 12-month PEG ratio was 1.56 and the forward PEG ratio was 0.25 based on the past five-year Ebitda growth rate of 4.70% and the projected five-year earnings per share growth rate of 29.30%.
The annual net income margin increased 359.43% per year over the past five years (fiscal 2017 through fiscal 2021), while annual operating income grew 2.81% per year over the same period. For fiscal 2021 (which ended Dec. 30), the annual net profit margin was 3.54%, while the annual operating income was $271.99 million.
On Wall Street, the stock has three strong buy, seven buy and three hold recommendation ratings. The average target price is $16.08 per share.
Worthington Industries
The second stock GARP investors may want to consider is Worthington Industries Inc. (WOR, Financial), a Columbus, Ohio-based manufacturer of steel products for various industries, including automotive, aerospace, agriculture and construction. The company also offers consumer-branded products such as tools and products for outdoor living and celebrations. In addition to these products, the company sells several specialty products to gas producers and traders, as well as on-board fueling systems and gas containment solutions and related services for the storage, transportation and distribution of industrial gases.
The stock closed at $51.25 per share on Friday for a market cap of $2.55 billion and a price-earnings ratio of 6.91. The share price has fallen by 3.74% over the past year, fluctuating within a 52-week range of $39.13 to $62.82.
The trailing 12-month PEG ratio was 0.32 and the forward PEG ratio was 0.16 based on the past five-year Ebitda growth rate of 21.50% and the projected five-year earnings per share growth rate of 41.50%.
The annual net income margin increased 163.61% per year over the past five years (fiscal 2018 through fiscal 2022), while annual operating income grew 28.30% per year over the same period. For fiscal 2022 (ended May 31), the annual net income margin was about 7.24%, while the annual operating income was $315.25 million.
On Wall Street, the stock has three hold recommendation ratings. The average target price is $52.50 per share.
