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. Value Investing

    The strategy of selecting stocks that trade for less than their ...
  4. Growth Stock

    Shares in a company whose earnings are expected to grow at an ...
  5. Undervalued

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

    A term that measures some aspect of a company's financial well-being, ...
Related Articles
  1. Fundamental Analysis

    Great Expectations: Forecasting Sales ...

  2. Active Trading

    Sell Growth Stocks The IBD Way

  3. Chart Advisor

    A Total Stock Market ETF For Any Portfolio

  4. With the addition of 'Bond King' Bill Gross, Janus is a changed firm. Here's what its fund lineup looks like now.
    Investing Basics

    How Does Janus's Fund Lineup Look Now?

Hot Definitions
  1. Capitulation

    When investors give up any previous gains in stock price by selling equities in an effort to get out of the market and into ...
  2. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  3. Conduit Issuer

    An organization, usually a government agency, that issues municipal securities to raise capital for revenue-generating projects ...
  4. Financing Entity

    The party in a financing arrangement that provides money, property, or another asset to an intermediate entity or financed ...
  5. Hyperinflation

    Extremely rapid or out of control inflation. There is no precise numerical definition to hyperinflation. Hyperinflation is ...
  6. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
Trading Center