ATOUR LIFESTYLE HOLDINGS-ADR (NASDAQ:ATAT): A GARP Investment with Strong Growth and a Reasonable Price

For investors looking to balance the search for growth with a degree of caution, the Growth at a Reasonable Price (GARP) method presents a viable middle path. This method looks for companies with solid and lasting expansion, but importantly, sidesteps those with very high prices. The aim is to locate businesses where the current cost is supported by future earnings prospects, lowering the danger of paying too much for excitement. One way to find these opportunities is through a structured filter for "affordable growth," selecting for stocks with high marks in expansion, earnings, and financial soundness, while checking that the price remains acceptable. A stock that recently appeared from this filter is Atour Lifestyle Holdings Ltd. (NASDAQ:ATAT).

A Snapshot of Fundamental Strength

A detailed fundamental analysis report for Atour Lifestyle Holdings Ltd. shows a strong overall picture, receiving a combined score of 8 out of 10. This score comes from an assessment across five key areas: Growth, Valuation, Health, Profitability, and Dividend. For a GARP method, the notable numbers are the high scores in Growth, Health, and Profitability, which are balanced by a middle valuation score. This mix is exactly what the affordable growth filter aims to find,a company with a good operational base that is growing quickly, yet is not valued as flawless.

Exceptional Growth Path

The central idea of any growth investment is, expectedly, expansion. Atour does very well here, getting a top Growth rating of 9. The company is showing forceful growth both in its recent past and in its estimated future.

• Past Performance: Revenue jumped by 36.24% over the last year, and the average yearly Earnings Per Share (EPS) growth over recent years is a notable 138.03%. This shows the company has effectively increased its operations and turned revenue growth into net income.
• Future Expectations: Analysts expect this trend to persist, with predicted yearly EPS growth of 24.82% and revenue growth of 26.73% in the next years. While these forward estimates show a slowdown from the high past rates, they still point to a very good growth picture that is key to the investment case.

Valuation in Context

The Valuation rating for ATAT is a middle 5, which is the limit for being seen as "not overvalued" in the affordable growth filter. This score shows a varied situation that needs perspective. The stock's standard Price-to-Earnings (P/E) ratio of 31.67 looks high next to the wider S&P 500 average. However, this is where the GARP examination adds detail.

• Forward-Looking and Relative Value: The more applicable Price-to-Forward Earnings ratio is at a more acceptable 18.84, which is in fact lower than both the industry average and the current S&P 500 average. This implies the market is accounting for the company's anticipated earnings growth.
• Growth Consideration: Importantly, when growth is included using measures like the PEG ratio, Atour's valuation seems more even. The report mentions that the company's excellent earnings may support a higher earnings multiple, and the good expected growth rates give fundamental backing for the present price.

The Foundation: Profitability and Financial Health

Lasting growth cannot happen without a good core business. Atour's high Profitability (9) and Financial Health (9) ratings supply that needed base, reducing risk for growth-focused investors.

• High-Quality Earnings: The company earns strong profits with very good margins. Its Return on Invested Capital (ROIC) of 25.73% and Operating Margin of 22.20% are near the top in the Hotels, Restaurants & Leisure industry, showing efficient use of money and good pricing ability.
• Very Strong Balance Sheet: Financial soundness is critical, particularly for an expanding company. Atour has an extremely solid balance sheet with very little debt (Debt/Equity ratio of 0.02) and high cash availability (Current Ratio of 2.16). Its Altman-Z score shows a very small chance of financial trouble. This strong condition gives the company significant room to finance future expansion plans without taking on too much debt.

Conclusion and Further Research

Atour Lifestyle Holdings Ltd. offers an example of the affordable growth filtering process. It shows the signs of a good GARP candidate: very high historical growth, good future growth estimates, and top-tier earnings,all backed by a very strong balance sheet. While its trailing P/E ratio may cause some hesitation, its forward valuation measures seem acceptable when viewed alongside its growth speed and operational quality.

For investors wanting to examine other companies that match this description of good growth combined with acceptable valuation and sound basics, more outcomes can be seen by using the Affordable Growth filter.

Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer to buy or sell any security. Investing involves risk, including the potential loss of principal. You should conduct your own research and consult with a qualified financial advisor before making any investment decisions.