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 are:
- Trailing 12-month and forward PEG ratios less than or equal to 2.
- A more than 5% yearly average increase in the net income margin over the past five years.
- Annual earnings 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.
Jabil Inc.
The first stock GARP investors may want to consider is Jabil Inc (JBL, Financial), a St. Petersburg, Florida-based provider of manufacturing services to electronic components producers worldwide.
The stock closed at $60.18 per share on Tuesday for a market cap of $8.63 billion and a price-earnings ratio of 12.28. The trailing 12-month PEG ratio was 0.91 and the forward PEG ratio was 1.02, based on the past five-year Ebitda growth rate of 13.50% and the projected five-year earnings per share growth rate of 12.70%.
The annual net income margin increased 291.45% per year over the last five years (fiscal 2017 through fiscal 2021), while annual operating income grew 18.29% per year over the same period. As of fiscal 2021, the annual net profit margin was 2.38%, while the annual operating income was $1.94 billion.
The share price has grown by 44.77% over the past year, fluctuating within a 52-week range of $40.87 to $72.11.
On Wall Street, the stock has a median recommendation rating of buy. The average target price is $79.75 per share.
OneMain Holdings Inc.
The second stock GARP investors may want to consider is OneMain Holdings Inc. (OMF, Financial), an Evansville, Indiana-based provider of consumer finance and insurance products and services.
The stock closed at $52.41 per share on Tuesday for a market cap of $6.79 billion and a price-earnings ratio of 4.99. The trailing 12-month PEG ratio was 0.79 and the forward PEG ratio was 0.32 based on a past five-year book value growth rate of 15.40% and projected five-year earnings per share growth rate of 15.78% (for financial services companies, the growth rate used is the five-year growth rate of the book value).
The annual net income margin increased 36.87% per year over the last five years (2016 through 2020), while annual operating income grew 25.68% per year over the same period. As of the end of 2020, the annual net profit margin was 16.43%, while the annual operating income was $1.02 billion.
The share price has risen by almost 17.64% over the past year, fluctuating in a 52-week range of $44.45 to $63.19.
On Wall Street, the stock has a median recommendation rating of buy. The average target price is $71.93 per share.
GMS Inc.
The third stock GARP investors may want to consider is GMS Inc. (GMS, Financial), a Tucker, Georgia-based plasterboard, ceilings systems and other complementary materials provider for North American builders.
The stock closed at $50.91 per share on Tuesday for a market cap of $2.19 billion and a price-earnings ratio of 12.50. The trailing 12-month PEG ratio was 0.97 and the forward PEG ratio was 0.49 based on a past five-year Ebitda growth rate of 12.40% and a projected five-year earnings per share growth rate of 24.60%.
The annual net income margin increased 68.55% per year over the last five years (fiscal 2017 through fiscal 2021), while annual operating income grew 16.53% per year over the same period. As of fiscal 2021, the annual net profit margin was 3.20%, while the annual operating income was $191.7 million.
The share price has risen by almost 80% over the past year, fluctuating in a 52-week range of $28.19 to $61.79.
On Wall Street, the stock has a median recommendation rating of overweight. The average target price is $68.86 per share.
