For investors looking to balance the search for growth with a degree of caution, the "Growth at a Reasonable Price" (GARP) or "Affordable Growth" strategy offers a practical middle path. This method tries to find companies with good and lasting growth paths, but whose shares are not valued at extreme levels. The aim is to sidestep the high risk of paying too much for very fast growth while still gaining from the progress of developing businesses. Filtering for stocks with sound basic health and earnings confirms these growth narratives are supported by a firm operational and money base, not only hopeful excitement.
A recent filter for such "Affordable Growth" possibilities highlighted Birkenstock Holding PLC (NYSE:BIRK), the well-known German footwear and lifestyle brand. Based on a fundamental analysis report from ChartMill, BIRK shows a notable profile that matches this investment thinking well, receiving a total fundamental score of 6 out of 10 when compared to others in the Textiles, Apparel & Luxury Goods field.
Notable Growth Path
The central idea of an affordable growth strategy is, expectedly, growth. Birkenstock does very well here, achieving a high Growth score of 8. The company is not just expanding, it is speeding up from a strong position.
- Strong Past Results: Over the last year, Earnings Per Share (EPS) rose by a notable 45.31%, while sales went up by 16.22%. The longer-term pattern is more notable, with an average yearly EPS increase of 28.17% and sales increase of 23.57% over recent years.
- Lasting Future View: Importantly for GARP investors, this expansion is forecast to persist, though at a more measured, lasting speed. Experts predict average yearly EPS growth of 10.15% and sales growth of 11.05% for the next years. This shift from very fast to sound growth is common for developing yet still-growing stories.
A Valuation That Is Monitored
Finding solid growth is only part of the task, the "reasonable price" element is what divides GARP from simple growth investing. Birkenstock's Valuation score of 5 indicates it is not highly priced, particularly within its competitive setting.
- Comparative Worth: With a Price/Earnings (P/E) ratio of 18.10, BIRK is priced lower than 68.89% of others in its field, where the average P/E is 26.75. It also sells at a clear discount to the wider S&P 500's P/E of 28.18.
- Growth-Considered Measures: The future P/E ratio of 16.30 matches the field average. Also, the PEG ratio, which modifies the P/E for predicted earnings growth, shows a fair price. This pairing, good growth with field-relative and market-relative worth, is exactly what the affordable growth filter aims to find.
Supporting Basics: Earnings and Soundness
For growth to be lasting and the price to be fair, a company must earn money and be financially stable. Birkenstock's scores here give important backing for the idea.
- Very Good Earnings (Score: 7): The company works with top-level margins. Its Operating Margin of 26.38% beats all others in its field, and its Profit Margin of 16.61% is higher than 97.78% of rivals. These margins have also been growing in recent years, showing price strength and operational effectiveness.
- Satisfactory Financial Soundness (Score: 6): The financial soundness view is firm with some points to note. The company holds a workable Debt/Equity ratio of 0.46 and has a very strong Current Ratio of 2.81, showing enough cash for near-term needs. A point to see is that the company's Return on Invested Capital (ROIC) is now below its cost of capital, which is a measure investors may want to check for betterment later.
Summary
Birkenstock’s basic profile shows the workings of the affordable growth strategy. The company’s clear, proven growth in earnings and sales supplies the "engine" for possible share price gains. This growth is seen by the market, but it is also not being valued at a high level next to its field or the wider market, meeting the "reasonable price" filter. Supporting this are high earnings and acceptable financial soundness, which imply the growth is of a type that can be kept.
For investors wanting to review other companies that fit this mix of growth, price, and basic strength, the Affordable Growth filter can be used to create a changing list of possible options.
Disclaimer: This article is for information only and is not financial guidance, a support, or a suggestion to buy, sell, or keep any security. The basic data and scores use past and predicted numbers, which can change. Investors should do their own complete study and think about their personal money situation and risk comfort before making any investment choices.
