Analog Devices Inc. (NASDAQ:ADI) Exemplifies the Affordable Growth Investment Strategy

For investors looking for a mix of solid increase and careful cost, the "Growth at a Reasonable Price" (GARP) or "Affordable Growth" method presents a good middle path. This method tries to find companies that show good, lasting increase but are not priced at extreme levels. By concentrating on stocks with good basics, including sound profit and a steady money structure, the method works to reduce the dangers linked to high-growth stocks while still gaining from important rise. One stock that recently appeared from this sort of filter is ANALOG DEVICES INC (NASDAQ:ADI).

A Detailed View of Increase Measures

The center of any affordable increase idea is, expectedly, increase. Analog Devices does very well here, getting a high ChartMill Growth Rating of 8 out of 10. The company shows good speed across main money measures.

• Good Past Results: In the last year, ADI increased its Earnings Per Share (EPS) by 22.1% and its Revenue by 16.89%. The view over more years is also good, with average yearly increase rates of 9.67% for EPS and 14.49% for Revenue.
• Good Future View: The increase path is thought to keep going. Expert guesses point to yearly EPS increase of 20.64% and Revenue increase of 11.20% in the next years. It is important that the guessed EPS increase rate is getting faster next to its past speed, a mark of gaining operational speed.

This steady and speeding increase picture is exactly what the affordable growth filter looks for: companies with a shown and expected path for increase, not just guessed future possibility.

Cost in View

A stock with high increase can still be a bad buy if the price is too high. This is where the "reasonable price" part turns key. Analog Devices gets a ChartMill Valuation Rating of 5, showing a varied but finally fair picture when seen next to its increase and field.

• Seemingly High Ratios: On first look, normal measures like a Price-to-Earnings (P/E) ratio of 35.46 seem costly, especially next to the wider S&P 500 average.
• Field-Relative Cost: But, cost is relative. Inside the semiconductor equipment field, known for high-increase, high-profit businesses, ADI's cost is more average. Its P/E ratio is less than 71% of its field friends. This pattern is true for other measures; its Enterprise Value-to-EBITDA and Price-to-Free Cash Flow ratios are also more appealing than most competitors.
• Increase Balance: Most key, the cost seems right when increase is added. The PEG ratio, which changes the P/E for guessed earnings increase, points to a proper cost. The filter's need for a cost score above 5 is made to sort out very overpriced stocks, and ADI's place as a relatively better value inside a high-quality field fits this aim.

A full list of these and all other basic points is in the full basic study report for ADI.

Supporting Basics: Profit and Money Soundness

For increase to be lasting and the cost to be reasonable, a company must be managed well and money-wise sound. The affordable increase method clearly filters for acceptable scores in profit and money soundness to make sure of this steadiness.

• Profit Force: ADI scores a 7 for Profit, a clear strong point. The company has very good profits, with a Gross Profit of 61.47% and an Operating Profit of 27.25%, doing better than over 85% of its field. Its returns on assets, equity, and invested money are all above the field middle. This high level of profit gives the cash flow needed to pay for future increase plans, give back to owners, and handle economic drops.
• Money Soundness Points: With a Soundness rating of 5, this area shows a more detailed picture. On the good side, ADI has a workable Debt-to-Equity ratio of 0.25 and a strong Altman-Z score, showing no short-term closure danger. The filter's need for an "acceptable" soundness score notes that increase companies often have some debt to support increase. But, investors should see points of care, like a current and quick ratio that are less than many field friends, pointing to tighter cash on hand. This varied soundness picture is a point for investors to watch, though it stays inside the limits the filter method sees as acceptable when balanced next to strong increase and profit.

End

Analog Devices Inc. shows an example of the affordable increase investment idea. It joins a strong increase engine, with speeding earnings and good revenue patterns, with a cost that, while not low in plain terms, is reasonable next to its high-performing field and future outlook. This increase is supported by better profit measures and a money soundness picture that, while having some small worries, is seen as enough for the method. The stock shows the filter's goal: to find companies where investors are not paying too much for quality increase.

For investors wanting to find other companies that fit this picture of strong increase at a reasonable price, you can see the full list of results from the Affordable Growth filter here.

Disclaimer: This article is for information only and is not money advice, a suggestion to buy, sell, or hold any security, or a support of any investment plan. Investors should do their own study and talk with a skilled money advisor before making any investment choices.