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. Stock

    A type of security that signifies ownership in a corporation ...
  4. Multiple

    A term that measures some aspect of a company's financial well-being, ...
  5. Price/Earnings To Growth - PEG ...

    A stock's price-to-earnings ratio divided by the growth rate ...
  6. Undervalued

    A financial security or other type of investment that is selling ...
RELATED FAQS
  1. How much of a diversified portfolio should be invested in the electronics sector?

    The electronics sector tracks closely with the broader market, making it a cyclical sector with average volatility. Electronics ... Read Full Answer >>
  2. What impact does inflation have on the time value of money?

    The impact that inflation has on the time value of money is that inflation decreases the value of a dollar over time. The ... Read Full Answer >>
  3. What metrics are commonly used to evaluate companies in the internet sector?

    The metrics commonly used to evaluate companies in the Internet sector are user growth, sales growth and gross margin. The ... Read Full Answer >>
  4. How can I tell whether a particular small cap stock has a positive investment outlook?

    The investment outlook for a small-cap stock is determined by operational outlook and current stock price. The operational ... Read Full Answer >>
  5. Other than my savings account, what other types of holdings compound my interest?

    Investors and savers can use the power of compounding interest to accumulate wealth over time. Unlike simple interest that ... Read Full Answer >>
  6. Is the banking sector a good choice for value investing?

    The banking sector is a good choice for value investing. Value investors look for stocks in which the market price does not ... 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. Economics

    The U.S. Economy May Be Stronger Than You Think

    While the economic performance in the U.S. broadly disappointed in the first quarter, temporary factors presented one-off events that depressed output.
  4. Retirement

    Facing Retirement? Look Beyond 100% Bonds

    Retiring doesn't mean putting all your money in bonds. There are two things to consider when it comes to be invested in bonds: growth and inflation.
  5. Economics

    One Silver Lining Of Slower Global Growth

    Stocks struggled last week amid more evidence out of the world’s largest economies that global economic growth isn’t accelerating as expected.
  6. Mutual Funds & ETFs

    U.S. Investors Are Seeking Opportunities Overseas

    A latest analysis leads to believe that many investors are applying a spring cleaning approach to their portfolios, rebalancing as the 1st quarter ended.
  7. Investing

    The Labor Market Recovery’s Missing Ingredient

    Job creation is running at the fastest pace since the 90s, and there is some evidence that wage growth is finally starting to accelerate, albeit modestly.
  8. Charts & Patterns

    Why These May Be the Top 4 Growth Stocks of 2015

    These four stocks have high upside potential in 2015.
  9. Chart Advisor

    Interested in Growth Stocks? See These 4 ETFs

    Given the rise in popularity of growth ETFs, there are several interesting growth stock choices for investors.
  10. Mutual Funds & ETFs

    6 ETFs to Fight Your Recession Jitters

    Are you worried about a recession? If so, consider these 6 ETFs.

You May Also Like

Hot Definitions
  1. Fiduciary

    1. A person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets ...
  2. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  3. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  4. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  5. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
Trading Center