A Trio of Stocks for the GARP Investor

These stocks are offering growth at reasonable prices

Summary
  • RH, TopBuild and AMN Healthcare Services appear to be suitable investments based on GARP criteria.
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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 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 assessing a stock's prospects are:

  1. Trailing 12-month and forward PEG ratios less than or equal to 2.
  2. An average annual net income margin increase of more than 5% over the past five years.
  3. Annual profit is projected to increase by more than 10% every year for the next five years.
  4. A positive trend in annual operating income over the past five years.
  5. A price-earnings ratio of less than or equal to 25.

Thus, GARP investors may want to consider the following stocks, since they match the above criteria.

RH

The first stock GARP investors may want to consider is RH (RH, Financial), a Corte Madera, California-based operator of home furnishing stores.

The stock closed at $396.20 per share on Tuesday for a market cap of $8.51 billion and a price-earnings ratio of 18.46. The trailing 12-month PEG ratio was 0.41 and the forward PEG ratio was 0.78, based on the past five-year Ebitda growth rate of 45.10% and the projected five-year earnings per share growth rate of 23.55%.

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The annual net income margin increased by 1,277.25% per year over the past five years (fiscal 2017 through fiscal 2021), while annual operating income grew 60.75% per year over the same period. For fiscal year 2020 (which ended Jan. 29, 2021), the annual net profit margin was 14.61%, while the annual operating income was $617.3 million.

The share price has declined by 13.87% over the past year, fluctuating within a 52-week range of $346.07 to $744.56.

On Wall Street, the stock has a median recommendation rating of overweight. The average target price is $690.13 per share.

TopBuild

The second stock GARP investors may want to consider is TopBuild Corp. (BLD, Financial), a Daytona Beach, Florida-based company that is engaged in the installation and distribution of insulation and other building products for the construction industry. The company has approximately 235 installation locations and 175 distribution centers throughout the United States and Canada.

The stock closed at $212.10 per share on Tuesday for a market cap of $6.98 billion and a price-earnings ratio of 21.71. The trailing 12-month PEG ratio was 0.57 and the forward PEG ratio was 0.96, based on the past five-year Ebitda growth rate of 38.20% and the projected five-year earnings per share growth rate of 22.63%.

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The annual net income margin increased 6.01% per year over the past five years, while annual operating income grew 31.21% per year over the same period. As of the end of 2021, the annual net profit margin was 227%, while the annual operating income was $491.7 million.

The share price has risen by 11.63% over the past year, fluctuating in a 52-week range of $179.50 to $284.07.

On Wall Street, the stock has a median recommendation rating of overweight. The average target price is $263.29 per share.

AMN Healthcare Services

The third stock GARP investors may want to consider is AMN Healthcare Services Inc. (AMN, Financial), a Dallas-based provider of workforce solutions and staffing services to U.S. medical care facilities.

The stock closed at $105.01 per share on Tuesday for a market cap of $4.90 billion and a price-earnings ratio of 15.40. The trailing 12-month PEG ratio was 0.99 and the forward PEG ratio was 0.80, based on a past five-year Ebitda growth rate of 15.50% and projected five-year earnings per share growth rate of 19.35%.

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The annual net income margin increased 28.15% per year over the past five years, while annual operating income grew 41.18% per year over the same period. As of the end of 2021, the annual net profit margin was 178.22%, while the annual operating income was $478 million.

The share price has risen by 45.34% over the past year, fluctuating in a 52-week range of $69.50 to $129.12.

On Wall Street, the stock has a median recommendation rating of overweight. The average target price is $141.13 per share.

Disclosures

I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours. Click for the complete disclosure