For investors looking for a mix of chance and caution, the "Growth at a Reasonable Price" (GARP) method presents a persuasive option. It tries to find companies showing good growth possibility but whose shares are not valued at extreme highs. This method sidesteps the speculative excitement of expensive, unprofitable growth stocks while also avoiding motionless value investments. One way to use this method is by filtering for stocks with good basic growth scores, along with firm profitability and financial soundness, all while keeping a sensible price. A recent filter using these ideas has pointed to ALAMOS GOLD INC-CLASS A (NYSE:AGI) as a candidate worth more detailed study.
A Good Growth Picture
The central idea of any GARP method is, expectedly, growth. Alamos Gold shows this clearly. The company's basic analysis report gives it a high-level Growth rating of 9 out of 10. This score comes from notable past results and hopeful future outlooks.
- Past Results: Over the last year, Alamos Gold increased its Earnings Per Share (EPS) by a remarkable 61.76% and its Revenue by 31.30%. The longer-term history is also good, with average yearly EPS increase of almost 30% over recent years.
- Future Outlooks: The growth story is likely to persist. Analyst forecasts predict yearly EPS increase of more than 40% and Revenue increase of almost 24% in the next years. Importantly, the analysis shows this forecasted increase rate is a rise from the already good past speed.
For a GARP investor, this rising, high-grade growth is the main source of possible gains, giving a basic reason for the stock to rise in value over time.
Price Consideration
A stock with excellent growth can still be a bad investment if bought at a very high price. This is where the "reasonable price" part is important. Alamos Gold gets a Price rating of 6, which, while not very low, implies the market has not yet completely priced its growth possibilities into an unreasonable high.
The price view is detailed:
- The standard Price-to-Earnings (P/E) ratio of 39 seems high on its own and next to the wider S&P 500. However, it is actually less than almost 65% of similar companies in the Metals & Mining business.
- More future-focused measures give a clearer picture. The Price/Forward Earnings ratio of 16.87 is seen as a "fair price" and is less expensive than both the S&P 500 average and most business rivals.
- Importantly, the analysis notes the company's low PEG ratio, which changes the P/E for expected growth. This measure shows the stock's price is "quite inexpensive" when its strong earnings growth path is included.
This mix of measures backs the GARP idea: investors are not paying a speculative high price for promise but are getting strong growth at a level that seems fair, and even moderate, compared to its future possibility.
Supporting Basics: Profit and Soundness
Lasting growth cannot happen alone; it must be backed by a profitable business model and a strong financial position. Alamos Gold rates well here, with Profit and Financial Soundness ratings of 8 and 7, in that order.
Profit Strengths:
- The company has business-best margins, with a Profit Margin of 33.46% and an Operating Margin of 43.88%, doing better than over 90% of similar companies.
- Returns on investment, including Return on Equity (13.33%) and Return on Assets (9.00%), are also in the high group of the business, showing effective use of investor money.
Financial Soundness Points:
- The financial position is careful, with a very low Debt/Equity ratio of 0.07, showing little financial danger.
- Its Altman-Z score shows low failure risk, and its Debt-to-Free-Cash-Flow ratio is very good, meaning it could in theory pay off all debt in just over a year from its cash flow.
These points are key for the GARP method. High profit makes sure growth is worthwhile and can be put back into the business or given to shareholders. Good financial soundness provides stability during economic drops and the ability to pay for future growth plans without taking on too much debt.
Final Points and Next Steps
Alamos Gold shows a profile that matches well with the goals of a cost-conscious growth investor. It joins a strong and rising growth path, the main force for value increase, with a price that seems sensible, if not a good opportunity, when judged against that growth. This possibility is supported by outstanding profit measures and a very strong financial position, lowering basic risk.
The company's complete basic analysis, which lists every measure behind these ratings, is ready for inspection here.
Alamos Gold was found using a specific filter for stocks with positive growth, acceptable profit and soundness, and sensible price. Investors wanting to look at other companies that fit similar "Low-Cost Growth" rules can find more possible choices by using the set filter on ChartMill.
Disclaimer: This article is for information only and is not financial guidance, a suggestion to buy or sell any security, or a support of any investment method. Investors should do their own complete study and think about their personal money situation and risk comfort before making any investment choices.
