For investors looking to balance the search for growth with prudence, the Growth at a Reasonable Price (GARP) method offers a practical middle path. This method tries to find companies that are increasing their earnings and revenue at a good rate, but whose shares are not offered at very high prices. It avoids the extremes of purely speculative growth investing and deep-value searching, concentrating instead on good businesses that are growing at a fair price. One way to find these candidates is through systematic screening, which can point out stocks like AGNICO EAGLE MINES LTD (NYSE:AEM), a senior gold producer that recently appeared on an "Affordable Growth" filter.
A Good Fundamental Profile
A full fundamental analysis of Agnico Eagle shows a sound overall view. According to ChartMill's detailed fundamental report, the company gets a good total rating of 7 out of 10 when compared to others in the Metals & Mining industry. This score comes from five important areas: Growth, Valuation, Health, Profitability, and Dividend. For a GARP method, the relationship between the first two, Growth and Valuation, is most important, but good scores in Profitability and Financial Health provide the needed base that makes the growth lasting and the valuation sensible.
Notable Growth Path
The company's growth numbers are a main reason it meets the affordable growth filter, having a Growth rating of 7. The past results have been especially good, supported by operational performance and industry mergers.
- Earnings Per Share (EPS) Growth: Over the last year, EPS rose by a notable 94.63%, with a 5-year average yearly growth rate of 33.97%.
- Revenue Increase: Revenue followed a similar upward trend, growing 35.16% last year and averaging 27.13% growth yearly over the past five years.
While analyst forecasts point to a slowing in this fast growth rate for the next few years, with EPS expected to grow about 8.45% yearly, this forward view stays positive and, importantly, is considered in the current stock price. This change from very fast growth to steady, lasting increase is often where GARP possibilities can be seen.
Valuation in Perspective
Agnico Eagle's Valuation rating of 7 shows it is not overpriced relative to its prospects, which is the central idea of looking for "affordable" growth. A quick look at a Price-to-Earnings (P/E) ratio of 28.82 might indicate a higher price. However, perspective is key:
- Industry Comparison: This P/E is lower than the industry average, with almost 75% of its mining peers trading at higher earnings multiples.
- Forward-Looking Measures: The more informative Price/Forward Earnings ratio is 18.03, which is lower than 65% of the industry and also under the current average for the S&P 500.
- Growth Adjustment: The low PEG ratio, which modifies the P/E for expected growth, suggests the market may not be fully accounting for the company's future earnings potential. Also, ratios like Price/Free Cash Flow and Enterprise Value/EBITDA show a picture of relative value within the sector.
The Bases of Profitability and Health
Lasting growth at a fair price cannot exist without basic financial strength. Agnico Eagle performs well here, which supports the investment case. Its Profitability rating is a high 9/10, supported by industry-leading margins.
- High Margins: The company's Gross Margin (70.29%), Operating Margin (49.49%), and Profit Margin (32.62%) all are in the top 5% of its industry.
- Effective Capital Use: Returns on Assets, Equity, and Invested Capital are all good and better than most peers.
Just as important is the Financial Health rating of 7. The company keeps a very careful balance sheet with little debt reliance, a key benefit in a capital-heavy, cyclical industry. Its Altman-Z score shows low bankruptcy risk, and its ability to repay debt from free cash flow is very good. This financial strength provides stability and the ability to fund future growth from within.
Summary and Additional Study
Agnico Eagle Mines presents an example of the affordable growth idea. It shows strong historical growth that is changing to a more controlled, lasting speed. Its current valuation, while not "deep value," seems fair, even interesting, when viewed against its industry, its future earnings, and its high profitability. The excellent margins and very strong balance sheet act as stabilizers, lowering the risk usually linked with growth investing.
This analysis comes from a specific screening method. For investors wanting to find other companies that match this profile of acceptable growth, fair valuation, and sound fundamentals, more results from the "Affordable Growth" screen can be viewed here.
Disclaimer: This article is for information only and is not financial advice, a suggestion, or an offer or request to buy or sell any securities. The analysis shown is based on data and ratings from ChartMill and should not be the only reason for an investment choice. Investors should do their own research and think about their personal financial situation, risk tolerance, and investment goals before making any investment. Past results do not guarantee future outcomes.
