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. Value Investing

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

    Shares in a company whose earnings are expected to grow at an ...
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. Fundamental Analysis

    Why should fundamental investors pay attention to Cash Value Added (CVA)?

    Take a deeper look at cash value added, a metric used by fundamental investors to assess the ability of a company to meet cash flow obligations.
  4. Fundamental Analysis

    What is considered a good PEG (price to earnings growth) ratio?

    Learn about the price/earnings to growth (PEG) ratio and understand what investors and market analysts consider a good ratio for this valuation measure.
  5. Trading Strategies

    5 Ways To Adapt To Tough Markets

    Tough markets undermine profitability and lower self-confidence. Fight back with five simple but powerful rules of engagement.
  6. Fundamental Analysis

    Do you always have to consider intrinsic value when purchasing a stock? Why or why not?

    Take a deeper look at why value investors consider a stock's intrinsic value an important consideration before picking a company to invest in.
  7. Fundamental Analysis

    What is the average price-to-book ratio in the oil & gas drilling sector?

    Calculating the price to book ratio for oil and gas drilling companies can provide insight for investors interested in understanding the value of a stock.
  8. Investing Basics

    What is the average price-to-earnings ratio in the oil & gas drilling sector?

    Investing in the energy sector provides an opportunity for value investors, but it is necessary to understand metrics such as the P/E ratio prior to investing.
  9. Fundamental Analysis

    Over what duration should I be examining a given stock's PEG (price to earnings growth) ratio?

    Learn how the PEG ratio provides an assessment of a stock's current price based on its trailing or projected earnings growth rate.
  10. Investing Basics

    How can growth investors benefit from investing in the oil & gas sector?

    Learn how the most important benefits incurred from growth investments are appreciation, compounding and a range of tax deductions.

You May Also Like

Hot Definitions
  1. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  2. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  3. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  4. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  5. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  6. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
Trading Center