BIRKENSTOCK HOLDING PLC (NYSE:BIRK): A Prime GARP Candidate with Strong Growth and Reasonable Valuation

In the search for growth stocks that do not command premium valuations, many investors turn to the Growth At Reasonable Price (GARP) approach. This strategy targets companies showing strong expansion potential while keeping reasonable valuation metrics, effectively balancing growth goals with financial prudence. One method to find such opportunities involves screening for stocks with strong growth ratings, good profitability and financial health scores, and valuations that do not look high relative to fundamentals.

BIRKENSTOCK HOLDING PLC (NYSE:BIRK) appears as a notable candidate through this screening method, especially fitting the affordable growth profile that mixes expansion potential with sensible valuation levels.

Growth Path and Momentum

The company shows impressive growth characteristics that are the base of its investment appeal. Recent performance numbers indicate good momentum across key financial measures:

• Revenue growth of 17.60% over the past year, with a five-year average yearly growth rate of 23.33%
• Earnings per share expansion of 45.13% in the most recent year, building on a 32.40% average yearly growth rate over multiple years
• Forward estimates pointing to continued strong growth with EPS expected to rise by 26.92% each year and revenue expected to grow at 15.57% per year

This steady growth pattern across both past performance and future estimates places Birkenstock well within the affordable growth framework, where continued expansion is a key part.

Valuation Review

While growth is one part of the investment case, reasonable valuation is the equally important second part. Birkenstock's valuation numbers present a mixed but generally acceptable view:

• Price-to-earnings ratio of 24.54, about in line with industry averages and a bit below the S&P 500 multiple
• Forward P/E ratio of 18.78, showing a discount to both industry and broader market forward multiples
• Price-to-free-cash-flow ratio that places the company more affordably than 61% of industry peers
• PEG ratio that indicates the current valuation fairly matches expected growth rates

These valuation traits support the idea that while not deeply discounted, Birkenstock's shares seem fairly priced given the company's growth outlook and operational performance.

Profitability and Operational Strength

The company's good profitability numbers give more support for the investment case, showing that growth is not coming at the cost of operational efficiency:

• High operating margin of 26.30%, doing better than all industry competitors
• Healthy profit margin of 15.14%, putting the company in the top group of its sector
• Return on assets of 6.25% and return on equity of 11.66%, both above industry median levels
• Gross margin of 59.33% showing good pricing power and brand strength

These profitability measures are especially important within the affordable growth framework, as they suggest the company can pay for future expansion through internally made cash flows instead of depending too much on outside financing.

Financial Health Points

While the company shows some small concerns in financial health, overall numbers stay acceptable for a growth-focused investment:

• Current ratio of 2.78 shows good short-term liquidity position
• Debt-to-equity ratio of 0.50 shows a balanced capital structure
• Altman-Z score of 3.14 suggests low near-term bankruptcy risk
• Some concerns about debt levels relative to free cash flow, though manageable within context

The financial health rating of 6/10, while not outstanding, remains within the acceptable range for growth investments, especially given the company's good cash generation abilities.

Investment Points and Thoughts

Birkenstock's mix of strong growth numbers, reasonable valuation, high profitability, and acceptable financial health fits well with the affordable growth investment approach. The company's vertically integrated manufacturing model, global brand recognition, and direct-to-consumer channel development give competitive benefits that support continued expansion.

The fundamental analysis report available through ChartMill's detailed assessment gives more depth on these numbers and their meaning for long-term investment potential.

For investors looking for more opportunities that meet similar affordable growth standards, further screening results can be found through the affordable growth stock screener, which finds companies with strong growth traits, reasonable valuations, and good fundamental profiles.

Disclaimer: This analysis is provided for informational purposes only and should not be construed as investment advice or a recommendation to buy, sell, or hold any security. Investors should conduct their own research and consult with a qualified financial advisor before making investment decisions.