For investors looking to balance the search for high-growth companies with some fiscal care, the "Growth at a Reasonable Price" (GARP) or "Affordable Growth" strategy offers a practical middle path. This method looks for companies with solid growth paths, but whose shares are not valued at extreme levels that assume many years of future success. It also needs a base of acceptable financial health and earnings to confirm the company can maintain its growth. By selecting for stocks with high growth marks, fair valuation measures, and sufficient scores in earnings and financial soundness, investors can search for opportunities that provide possibility without extreme risk.
APELLIS PHARMACEUTICALS INC (NASDAQ:APLS) recently appeared through such an Affordable Growth filter. The commercial-stage biopharmaceutical company, working on treatments for the complement system, shows a profile that fits the main ideas of this strategy.
A Base of Solid Growth
The most notable part of Apellis's profile is its strong growth, which gave it a ChartMill Growth Rating of 7 out of 10. This mark shows significant momentum as the company moves from clinical work to selling its main product, Syfovre® for geographic atrophy.
- Fast Revenue Increase: The company's revenue increased by 42.11% over the past year. More notably, the average yearly revenue growth over recent years is at a high 127.23%, highlighting the effective launch period of its key products.
- Move to Earnings: After years of spending, Apellis has become profitable on a GAAP basis. Earnings Per Share (EPS) rose by 116.40% in the last year, an important turning point for a growth-stage biotech.
- Continued Future Momentum: Experts think this growth will persist, with estimated EPS growth averaging 26.57% and revenue growth averaging 13.75% each year in the near future. While the future revenue growth rate slows from its launch-period highs, it stays quite solid, pointing to a shift to a more maintainable sales growth path.
This growth is the necessary driver for the Affordable Growth strategy, as it supplies the basic business increase that can support and possibly lead to future share price gains.
Valuation with Perspective
Even with this solid growth profile, Apellis does not seem to be trading at a high level common to many soaring biotech stories. It gets a medium ChartMill Valuation Rating of 5, meaning it is not seen as overvalued compared to its own past and industry group. This mix between growth and cost is the central part of the GARP method.
- Varied Signs on P/E: The company's standard Price-to-Earnings (P/E) ratio of 67.58 is high in simple terms and next to the wider S&P 500. However, perspective is important: 90% of its biotechnology industry group trades at even higher P/E multiples, suggesting Apellis is relatively less expensive within its high-growth field.
- Attractive Cash Flow and EBITDA Measures: More revealing are other valuation numbers. Based on its Enterprise Value to EBITDA and Price to Free Cash Flow ratios, Apellis is valued at a lower cost than over 92% of its industry rivals. This shows the market may not be completely counting its cash-making ability.
- Growth Payback: The low PEG Ratio, which changes the P/E for expected earnings growth, further indicates a fair valuation that pays investors for the growth they are purchasing.
For the Affordable Growth investor, this valuation view is important. It suggests the market has not yet fully "counted" the company's growth narrative, possibly allowing space for gain if performance continues.
Reviewing Earnings and Financial Soundness
The Affordable Growth strategy sensibly looks past just growth and value, needing reviews of the company's operational effectiveness and balance sheet. Apellis scores a 5 on both its Earnings and Financial Soundness ratings, showing a medium but satisfactory position in these areas for its industry, a key part of the filter.
Earnings Advantages: The company's margins are a strong point. Its Gross Margin of nearly 89%, Operating Margin of 7.91%, and Return on Invested Capital of 8.15% all place in the top 10% of the biotechnology industry. This proves that its growth is of good quality and commercially effective.
Soundness Points: The financial soundness score shows a company in change. On one side, it has a solid Current Ratio of 3.54, showing enough cash to meet near-term needs. Its Debt-to-Free-Cash-Flow ratio is also very good compared to peers. On the other side, numbers like the Altman-Z score point to risks linked to its recent record of losses, a typical trait in commercializing biotech firms. The filter's need for an "acceptable" soundness score recognizes these facts while sorting out companies in less stable financial situations.
Summary
Apellis Pharmaceuticals represents the kind of opportunity an Affordable Growth filter is made to find: a company with clear, strong growth, especially in revenue and a recent move to earnings, that is not trading at a field-high valuation. Its very good margins and sufficient cash provide a base to back its growth plans. While investors must always consider the natural risks in the biotechnology field, including product development and competition, the basic profile shown in its detailed analysis report fits a strategy looking for growth at a fair price.
For investors wanting to review other companies that match this balanced profile, more results from the Affordable Growth filter are available 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 review is based on data and ratings from ChartMill, and investors should do their own research and talk with a qualified financial advisor before making any investment choices. Investing in stocks, particularly in the biotechnology field, has risks, including the possible loss of initial funds.
