There are some investors who believe growth is important as long as you do not pay too much for it. Such investors are seeking 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 investors assessing 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 could be interested in the following stocks, as they meet the above criteria.
Barrett Business Services Inc
The first stock GARP investors could be interested in is Barrett Business Services Inc. (BBSI, Financial), a Vancouver, Washington-based provider of business management solutions to small and mid-sized U.S. companies.
The stock closed at $72.78 per share on Tuesday for a market cap of $549.54 million and a price-earnings ratio of 17.13. The trailing 12-month PEG ratio was 1.75 and the forward PEG ratio was 1.14, based on a past five-year Ebitda growth rate of 9.80% and a projected five-year earnings per share growth rate of 15%.
The net income margin (3.71% as of the March 2021 quarter) increased by about 10.2% per annum over the past five years, while the operating income ($35.7 million as of the March 2021 quarter) increased by 4.30% per annum over the same period.
GuruFocus assigned the company a financial strength rating of 7 out of 10 and a profitability rating of 6 out of 10.
The share price has grown 41.3% over the past year, fluctuating in a 52-week range of $47.90 to $79.73.
Berry Global Group Inc
The second stock GARP investors could be interested in is Berry Global Group Inc (BERY, Financial), an Evansville, Indiana-based manufacturer of non-woven, flexible and rigid products for consumer and industrial needs, supplying end markets in the U.S. and internationally.
The stock closed at $64.59 per share on Tuesday for a market cap of $8.73 billion and a price-earnings ratio of 12.59. The trailing 12-month PEG ratio was 0.73 and the forward PEG ratio was 0.99, based on a past five-year Ebitda growth rate of 17.20% and a projected five-year EPS growth rate of 12.66%.
The net income margin (5.37% as of the March 2021 quarter) rose by more than 18.5% per annum over the past five years, while the operating income ($1.413 billion as of the March 2021 quarter) increased by about 18% per annum.
GuruFocus assigned the company a financial strength rating of 4 out of 10 and a profitability rating of 7 out of 10.
The share price has increased by nearly 54% over the past year, fluctuating in a 52-week range of $40.08 to $70.90.
Rush Enterprises Inc
The third stock that GARP investors could be interested in is Rush Enterprises Inc (RUSHA, Financial) (RUSHB, Financial), a New Braunfels, Texas-based retailer of commercial vehicles in the U.S.
On Tuesday, the price was $42 per share of Class A common stock and $37.52 per share of Class B common stock for a market cap of about $2.275 billion and a price-earnings ratio of 17.38. The trailing 12-month PEG ratio was 1.58 and the forward PEG ratio was 1, based on a past five-year Ebitda growth rate of 11% and a projected five-year earnings per share growth rate of 17.31%.
The net income margin (3.68% as of the March 2021 quarter) increased by about 16.8% per annum over the past five years, while the operating income ($174 million as of the March 2021 quarter) increased by 15.90% 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.
Over the past year, the share price for class A common stock has gained 66.4%, fluctuating in a 52-week range of $24.75 to $51.98. The share price for class B common stock has gained 81.31%, fluctuating in a 52-week range of $20.57 to $47.10.
Class A common stock over the past year:
Class B common stock over the past year:
Disclosure: I have no positions in any securities mentioned in this article.
