There are some investors who believe growth is important, but also do not want to pay too much for it. They are screening the market 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 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 annual net income margin over the past five years.
- Annual earnings are projected to increase more than 10% every year for the next five years.
- A positive trend in the annual 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, since they match the above criteria.
Knight-Swift Transportation Holdings Inc.
The first stock GARP investors may want to consider is Knight-Swift Transportation Holdings Inc (KNX, Financial), a Phoenix, Arizona-based provider of truckload transportation services in North America and Mexico.
The stock closed at $58.98 per share on Friday for a market cap of $9.79 billion and a price-earnings ratio of 15.69. The trailing 12-month PEG ratio was 1.10 and the forward PEG ratio was 0.84, based on the past five-year Ebitda growth rate of 14.20% and projected five-year earnings per share growth rate of 18.65%.
The annual net income margin increased by nearly 24% per annum over the past five years (2016-2020), while the annual operating income increased by 53% per annum over the same period.
The share price has grown by 39.14% over the past year, fluctuating within a 52-week range of $39.17 to $61.87.
On Wall Street, the stock has a median recommendation rating of overweight. The average target price is $66.58 per share.
Ensign Group Inc.
The second stock GARP investors may want to consider is Ensign Group Inc. (ENSG, Financial), a San Juan Capistrano, California-based provider of skilled nursing and senior living facilities in several states of the U.S.
The stock closed at $77.89 per share on Friday for a market cap of $4.30 billion and a price-earnings ratio of 23.02. The trailing 12-month PEG ratio was 1.50 and the forward PEG ratio was 1.53 based on a past five-year Ebitda growth rate of 15.40% and projected five-year earnings per share growth rate of 15%.
The annual net income margin increased by about 31.4% per annum over the past five years (2016-2020), while the annual operating income increased by about 36.4% per annum.
The share price has risen by almost 7% over the past year, fluctuating in a 52-week range of $68.29 to $98.66.
On Wall Street, the stock has a median recommendation rating of buy. The average target price is $92.20 per share.
