For investors looking to balance the search for high-growth companies with some caution, the Growth at a Reasonable Price (GARP) method presents a solid middle path. This method tries to find companies that are increasing quickly but are not selling at very high prices, often called "affordable growth." It tries to steer clear of paying too much for future promise while still joining in the upward move of strong business growth. One stock that recently appeared from this type of screening process is BROADCOM INC (NASDAQ:AVGO), a top worldwide company in semiconductor and infrastructure software products.
Notable for Growth
The main idea of any affordable growth method is, expectedly, growth. A company must show a solid and lasting path of increase to warrant investor attention. Broadcom does very well here, receiving a top ChartMill Growth Rating of 10 out of 10. This high score rests on a base of notable past results and good future outlooks.
- Past Results: In the last year, Broadcom increased its Earnings Per Share (EPS) by 35.74% and its Revenue by 25.22%. The longer-term pattern is also solid, with average yearly EPS increase of 25.23% and Revenue increase of 21.74% over recent years.
- Future Outlooks: Experts predict this forward motion will keep going. The company's Revenue is predicted to increase at a yearly rate of 30.05% in the next years, with EPS forecast to increase by 28.32% on average. This rise in predicted revenue increase compared to the past speed is a specifically good sign for investors focused on growth.
Price Assessment in Perspective
While growth is necessary, the "reasonable price" part is what divides a GARP investment from a risky guess. Broadcom's ChartMill Valuation Rating of 5 shows a varied but finally acceptable view when its growth outlooks are weighed. On initial look, standard measures point to a high price.
- Its Price/Earnings (P/E) ratio of 43.25 is high next to the wider S&P 500 average.
- In a similar way, its Price/Forward Earnings ratio of 21.84 is close to the market average.
Still, price assessment must be judged next to both the company's outstanding earnings and its industry competitors. Broadcom works in the capital-heavy semiconductor field, where high P/E ratios are normal. Here, the stock seems more acceptably priced.
- Broadcom's P/E ratio costs less than almost 70% of its industry competitors.
- Its Forward P/E ratio costs less than more than 78% of companies in the Semiconductors & Semiconductor Equipment industry.
- Importantly, the low Price/Earnings to Growth (PEG) ratio implies the stock's price sufficiently rewards investors for its high predicted earnings increase, which is the main idea of the affordable growth method.
Supporting Basics: Earnings and Soundness
For growth to be lasting and the price to be fair, a company must be basically healthy. This is where Broadcom's earnings and financial soundness become important, giving the steadiness needed for the GARP method.
Earnings is a clear positive, with a ChartMill rating of 9. The company produces outstanding margins, with a Profit Margin of 36.57% and an Operating Margin of 41.58%, doing better than over 95% of its industry. Its returns on assets and equity are also top in the industry. This high level of earnings gives the cash needed to pay for future growth projects, making the growth story more believable.
Financial Soundness shows a more detailed picture, with a medium rating of 5. The company has a noticeable amount of debt, with a Debt/Equity ratio of 0.80. However, this is balanced by a very solid Altman-Z score, pointing to low bankruptcy danger, and a good Debt to Free Cash Flow ratio of 2.28, showing the company can handle its debts from its solid cash production. While the liquidity ratios (Current and Quick Ratio) are lower than many competitors, they stay at levels usually seen as sufficient.
Summary
Broadcom Inc. makes a solid argument for investors using an affordable growth method. The company's perfect growth rating, supported by excellent past results and rising future outlooks, is the main draw. While its absolute price measures seem high, they are acceptable inside its high-achieving industry and when directly compared to its exceptional growth and earnings picture. The solid earnings gives a safety buffer and supports increase, while the financial soundness, though having some debt, is handled well by large cash flows.
For investors looking for other companies that match this profile of good growth at an acceptable price, more results can be found by checking the Affordable Growth stock screen on ChartMill. A full look at Broadcom's basic measures is in its full basic analysis report.
Disclaimer: This article is for information only and is not financial advice, a suggestion to buy or sell any security, or a support of any investment method. Investors should do their own study and think about their personal money situation and risk comfort before making any investment choices.