Growth at a Reasonable Price - GARP
Growth at a Reasonable Price (GARP) is an approach to investing that searches for stocks using a combination of the strategies used by value investors and by growth investors. Investors using the GARP style of investing look for companies that are selling for less than their intrinsic value that also have good growth potential.
Good investors aren't made of stone. Nothing can force you to stay strictly within the confines of one school of investing thought. If you're all about growth, but it seems a little too risky to pursue, and you want value, but worry it won't bring enough bang for your buck ... then you might favor GARP investing. Investors use this hybrid strategy to temper the shortcomings of one investing style with the strengths of the other.
A key metric that GARP investors use to evaluate stocks is the price-to-earnings/growth ratio. The PEG ratio is found by dividing the price-to-earnings ratio by the rate at which you think earnings will grow over the next few years. There's your value piece and your growth piece. GARP investors want solid growth potential in their stocks, but are willing to consider stocks that strict growth investors might reject as being too slow. They are also less willing to hop on board with projections of huge growth. GARP followers can also be a bit more flexible with getting stocks at a discount to their value, because they're factoring in future growth that traditional value investors might overlook.
Finding GARP-worthy stocks is much more than numbers, of course. It's all about, umm, finding growth at a reasonable price.
Peter Lynch is considered a GARP investor.
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