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 tries to find companies that are increasing their earnings and revenues at a rate above the norm, but whose stock prices are not at extreme highs. The objective is to steer clear of the speculative excess of high-growth stocks while still taking part in significant business development. One way to apply this is by filtering for stocks with high fundamental growth scores, good profitability and financial soundness, and a valuation that seems acceptable.
Atour Lifestyle Holdings Ltd. (NASDAQ:ATAT) is a recent prospect found by this "Affordable Growth" filter. The Chinese hotel company, recognized for its lifestyle-oriented brands such as Atour and Atour Light, has established a model that combines retail sales digitally into the guest stay, especially for sleep-related goods. The company's fundamental picture, as described in its detailed analysis report, indicates it fits well with the GARP idea.
A Base of Notable Growth
The central principle of any growth investment is, expectedly, growth. For a GARP method, this growth needs to be both significant and clear. Atour’s recent results and future outlook here are strong, giving it a high Growth Rating of 9 out of 10.
- Rapid Revenue Increase: The company has achieved notable top-line growth, with revenue rising by 36.24% in the last year. This is not an isolated occurrence; its average yearly revenue growth in recent years is a notable 35.84%.
- Firm Bottom-Line Path: While earnings per share (EPS) growth was more moderate last year at 5.07%, the longer-term view is significant, with an average yearly EPS growth of 138.09%. More critically, analysts forecast this trend to persist, with predicted future yearly EPS growth of 24.82% and revenue growth of 27.03%.
This mix of firm past performance and a positive forecast supplies the necessary "growth" element for the method. It shows the company is effectively enlarging its activities and gaining market position in China's hospitality and lifestyle field.
Valuation Viewed With Quality
A sensible valuation is what distinguishes a GARP prospect from a purely high-risk growth narrative. Atour’s Valuation Rating of 5 shows a varied but finally fair situation when balanced against its quality and growth potential. The stock is not inexpensive on a basic trailing price-to-earnings (P/E) measure, trading at a multiple of 27.85, which is similar to both its industry and the wider S&P 500.
Yet, the valuation seems more attractive when looking at forward estimates and growth adjustment:
- Its forward P/E ratio of 16.42 is viewed as sensible and is clearly lower than the industry average.
- The Price/Earnings to Growth (PEG) ratio, an important measure for GARP investors, is favorable, implying the stock's price may not completely account for its projected earnings growth rate.
- The report states that the company's high profitability could support a higher multiple, and that a richer valuation can be acceptable given the high projected growth.
This detailed valuation picture is exactly what GARP filters look for: a stock that is not extremely costly compared to its future possibilities, letting investors pay a fair price for better-than-average growth.
The Supports of Profitability and Financial Soundness
Lasting growth cannot occur without a profitable operation and a firm balance sheet. These are the protections that stop a high-growth narrative from falling apart. Atour performs very well in both areas, receiving a high Profitability Rating of 9 and a similarly high Financial Health Rating of 9.
Profitability Advantages:
- The company has very good margins, with a Profit Margin of 16.19% and an Operating Margin of 22.19%, putting it in the high rank of its industry.
- Its returns on capital are very good, with a Return on Invested Capital (ROIC) of 25.72%, doing better than over 95% of similar companies. This shows very effective use of capital to create profits.
Financial Soundness Advantages:
- The balance sheet is very solid, with a very small Debt/Equity ratio of 0.02 and a Debt-to-Free-Cash-Flow ratio of only 0.04, indicating very little financial risk and high ability to pay.
- Liquidity is firm, with Current and Quick Ratios above 2.0, making sure the company can easily meet its near-term responsibilities.
These high scores in profitability and soundness are vital for the "affordable" or "reasonable" part of the method. They provide a safety buffer, suggesting the company's growth is based on a stable and lasting base instead of financial borrowing or uncertain actions. It lowers the chance that the growth story will be disrupted by financial trouble.
Summary and Additional Study
Atour Lifestyle Holdings offers a relevant example for the Growth At A Reasonable Price method. It shows forceful revenue and earnings growth, both in the past and in projections, which is the main driver for investment gains. This growth is paired with a valuation that, while not low-value inexpensive, seems appropriate and sensible relative to its quality and future potential. Most significantly, this growth is supported by high profitability measures and a very firm financial condition, giving investors a level of fundamental security often missing in pure growth stories.
For investors wanting to examine other companies that match this balanced profile of growth, soundness, profitability, and sensible valuation, more prospects can be seen by checking the results of the Affordable Growth stock filter.
Disclaimer: This article is for information only and does not form 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 financial situation and risk willingness before making any investment choices.
