There are some investors who believe growth is important, but also do not want to pay too much for it. 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.
The five common fundamental indicators that "growth at a reasonable price," or GARP, investors refer to when they evaluate the outlook of a stock include:
- Trailing 12-month and forward PEG ratios are 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 since they match the above criteria.
PulteGroup
The first stock GARP investors could be interested in is PulteGroup Inc. (PHM, Financial), an Atlanta-based residential construction company.
The stock closed at $47.33 per share on Friday for a market cap of $12.28 billion and a price-earnings ratio of 7.65. The trailing 12-month PEG ratio was 0.3 and the forward PEG ratio was 0.42, based on the past five-year Ebitda growth rate of 22.90% and projected five-year earnings per share growth rate of 18.10%.
The net income margin (12.75% as of the most recent full fiscal year) increased by about 10.6% per annum over the past five years, while operating income ($1.7 billion as of the most recent year) increased by 23% per annum over the same period.
The share price has fallen by 4.33% over the past year, fluctuating within a 52-week range of $39.92 to $63.91.
Korn Ferry
The second stock GARP investors could be interested in is Korn Ferry (KFY, Financial), a Los Angeles-based provider of staffing and employment services to companies and organizations worldwide.
The stock closed at $76.09 per share on Friday for a market cap of $4.15 billion and a price-earnings ratio of 18.88. The trailing 12-month PEG ratio was 1.48 and the forward PEG ratio was 1.26 based on a past five-year Ebitda growth rate of 12.80% and projected five-year earnings per share growth rate of 15%.
The net income margin (6.29% as of the most recent full fiscal year) increased by 14.5% per annum over the past five years, while the operating income ($186.52 million as of the most recent fiscal year) rose by about 14.5% per annum.
The share price has increased by 136.60% over the past year, fluctuating in a 52-week range of $29.95 to $77.93.
