Growth At A Reasonable Price - GARP

AAA

DEFINITION of 'Growth At A Reasonable Price - GARP'

An equity investment strategy that seeks to combine tenets of both growth investing and value investing to find individual stocks. GARP investors look for companies that are showing consistent earnings growth above broad market levels (a tenet of growth investing ) while excluding companies that have very high valuations (value investing). The overarching goal is to avoid the extremes of either growth or value investing; this typically leads GARP investors to growth-oriented stocks with relatively low price/earnings (P/E) multiples in normal market conditions.

INVESTOPEDIA EXPLAINS 'Growth At A Reasonable Price - GARP'

GARP investing was popularized by legendary Fidelity manager Peter Lynch. While the style may not have rigid boundaries for including or excluding stocks, a fundamental metric that serves as a solid benchmark is the price/earnings growth (PEG) ratio. The PEG shows the ratio between a company's P/E ratio (valuation) and its expected earnings growth rate over the next several years. A GARP investor would seek out stocks that have a PEG of 1 or less, which shows that P/E ratios are in line with expected earnings growth. This helps to uncover stocks that are trading at reasonable prices.

In a bear market or other downturn in stocks, one could expect the returns of GARP investors to be higher than those of pure growth investors, but subpar to strict value investors who generally purchase shares at P/Es under broad market multiples.

RELATED TERMS
  1. Middle Market Firm

    A firm with sizeable annual revenues, ranging from $50 million ...
  2. Financial Buyer

    A type of buyer in an acquisition that is primarily interested ...
  3. Undervalued

    A financial security or other type of investment that is selling ...
  4. Multiple

    A term that measures some aspect of a company's financial well-being, ...
  5. Growth Stock

    Shares in a company whose earnings are expected to grow at an ...
  6. Value Investing

    The strategy of selecting stocks that trade for less than their ...
RELATED FAQS
  1. What is the average return on equity for a company in the retail sector?

    The retail sector includes automotive; building supply; distributors; general; grocery and food; online; and special lines ... Read Full Answer >>
  2. How attractive is the food and beverage sector for a growth investor?

    The food and beverage sector is attractive for a growth investor. The sector's high degree of volatility means it tends to ... Read Full Answer >>
  3. What techniques are most useful for hedging exposure to the insurance sector?

    Investing style determines the best hedging techniques for the insurance sector. This sector comprises three segments, two ... Read Full Answer >>
  4. How attractive is the retail sector for a growth investor?

    Retail is an attractive sector for a growth investor due to its propensity for turning in bigger-than-average gains when ... Read Full Answer >>
  5. What is the average price-to-book ratio of companies in the retail sector?

    The retail sector includes seven types of retail companies: automotive; building supply; distributors; general; grocery and ... Read Full Answer >>
  6. Are companies with high Book Value Of Equity Per Share (BVPS) takeover targets?

    Companies with high book value of equity per share (BVPS) can be good takeover targets if those companies are public and ... Read Full Answer >>
Related Articles
  1. Fundamental Analysis

    Great Expectations: Forecasting Sales Growth

    Predicting sales growth can be something of a black art, unless you ask the right questions.
  2. Active Trading

    Sell Growth Stocks The IBD Way

    Savvy investing is all about learning some smart rules and sticking to them. We give you the rundown.
  3. Investing

    Is There Still Opportunity in Japanese Stocks?

    Japanese stocks’ strong performance has prompted market watchers to question whether there’s still a case for adding exposure to the Land of the Rising Sun
  4. Professionals

    Value or Growth Stocks: Which is Best?

    The answer to the age-old growth versus value debate depends on a number of factors. Here's what to consider.
  5. Mutual Funds & ETFs

    ETF Analysis: Vanguard Large-Cap

    Discover what the Vanguard Large-Cap ETF has to offer investors in terms of investment management, historical performance, risk exposure and expenses.
  6. Stock Analysis

    Is PayPal Worth More Than eBay?

    Examine the online payment processor, PayPal, and discover its projected value increase as a standalone company, separate from eBay.
  7. Savings

    Pay Less for Financial Advice

    Here's a look at what you should pay for financial advice and investment management, what you should get for that price and how you can pay less.
  8. Mutual Funds & ETFs

    ETF Analysis: Vanguard FTSE Emerging Markets

    Learn why growth investors should consider investing in VWO's portfolio of emerging market stocks.
  9. Investing News

    Five Wildly Successful Value Investors

    Warren Buffett is not the only investor who has benefited tremendously from adopting Graham's approach to investing.
  10. Investing Basics

    Explaining Value Stock

    Investors look for value stocks because they consider them to be underpriced based on the stock’s fundamentals.

You May Also Like

Hot Definitions
  1. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  2. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  3. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  4. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
  5. Sin Tax

    A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. ...
  6. Grandfathered Activities

    Nonbank activities, some of which would normally not be permissible for bank holding companies and foreign banks in the United ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!