For investors looking to balance the search for growth with a degree of caution, the "Growth at a Reasonable Price" (GARP) method offers a solid middle path. This method tries to find companies with good and lasting growth paths, but whose shares are not priced too high. It avoids the speculative excitement often seen with high-growth stocks while also steering clear of value traps, companies that are low-priced for a cause. One useful way to apply this method is with screening tools that assess stocks using several basic measures. A typical screen, frequently called "Affordable Growth," looks for companies with high marks in growth, profitability, and financial soundness, along with a valuation score that is not low. This makes sure the chosen companies are not only getting bigger quickly but are doing so effectively and from a state of financial soundness, all without asking for a very high price from investors.
Atour Lifestyle Holdings Ltd. (NASDAQ:ATAT) appears as a stock that matches this description. The Chinese hotel company, recognized for its lifestyle-focused accommodations under names like Atour and Atour Light, has established a group of more than 800 hotels. A basic review of the company shows a strong financial picture that matches the affordable growth requirements.
A Base of Notable Growth
The central idea of any growth method is, expectedly, growth. ATAT performs very well here, receiving a high Growth Rating of 9 out of 10 from ChartMill. The company's past results and future estimates show a pattern of quick increase.
- Revenue Growth: In the last year, revenue rose by 36.2%. More notably, the average yearly revenue growth over recent years is 35.8%.
- Earnings Growth: While last year's EPS growth was a small 5%, the longer-term history is excellent, with an average yearly EPS growth of 138%.
- Forward Outlook: Experts believe this good pace will persist, with predicted average yearly growth of 27.1% for revenue and 25.1% for EPS in the next years.
This steady, high-double-digit growth in both revenue and earnings is exactly what growth investors want, offering the chance for notable gain if the path continues.
Valuation: A Fair Price for Quality
The "reasonable price" part is where many growth stocks struggle, often selling at very high multiples. ATAT's valuation shows a more even view, getting a medium Valuation Rating of 5. This indicates the stock is not obviously inexpensive, but it is also not overly costly compared to its potential.
- The company's Price-to-Earnings (P/E) ratio of 29.9 is similar to the wider S&P 500 average.
- More significant is the Forward P/E ratio of 17.6, which is less expensive than about two-thirds of similar companies in the Hotels, Restaurants & Leisure field and is under the S&P 500 average.
- When growth is considered using the PEG ratio, the valuation seems more appealing, showing investors are not paying too much for future earnings growth.
This valuation setting is important for the affordable growth method. It suggests the market sees ATAT's quality but has not yet valued it at a peak, possibly allowing for gain as the company follows its growth plans.
Supported by Strong Health and Profitability
Lasting growth cannot happen without a firm financial base and effective operations. This is where ATAT does very well, having high Health and Profitability Ratings of 9 each. These marks confirm the quality of its growth.
Financial Health Points:
- The company shows notable solvency, with a very small Debt/Equity ratio of 0.02 and a Debt-to-Free-Cash-Flow ratio of only 0.04, meaning it could pay all its debt in a short time using its cash flow.
- Liquidity is good, with Current and Quick Ratios above 2.0, showing enough ability to meet near-term needs.
- An Altman-Z score of 6.84 points to a very small near-term chance of financial trouble.
Profitability Attributes:
- ATAT is very effective at creating returns, with a Return on Invested Capital (ROIC) of 25.7%, doing better than 95% of its field.
- Its profit margin of 16.2% and operating margin of 22.2% are some of the top in the sector.
- The company has been regularly profitable and cash-flow positive for years.
These points are not just details; they are necessary for the affordable growth idea. High profitability means growth is paid for from within and is building real value for shareholders. Outstanding financial health gives a cushion against economic drops and the ability to put money into future growth without taking on too much debt.
Conclusion and More Study
Atour Lifestyle Holdings (ATAT) makes a solid argument as an affordable growth option. It joins a strong growth driver, with revenue and earnings increasing at a fast rate, with a valuation that does not seem too high. Importantly, this growth is based on a foundation of high profitability and excellent financial health, lowering the risk usually linked to high-growth stories. For investors using a GARP approach, ATAT shows the kind of company that fits the aim of gaining growth while keeping a careful watch on price and basic quality.
A more thorough look at ATAT's basic ratings is in its full fundamental analysis report.
Find More Affordable Growth Options The hunt for good growth stocks at fair prices is a continuous effort. The screen that found ATAT can be used to locate other companies with similar strong basics. You can look at more possible choices by seeing the Affordable Growth stock screen.
Disclaimer: This article is for information only and is not financial advice, a suggestion, or an offer to buy or sell any securities. The information given is based on supplied data and should not be the only reason for any investment choice. Investing has risk, including the possible loss of the original amount. Always do your own complete study and think about talking with a qualified financial advisor before making any investment choices.
