For investors looking for a mix of chance and caution, the "Growth at a Reasonable Price" (GARP) method presents a thoughtful option. It tries to find companies with good and lasting expansion, but whose stock prices are not too high. This method steers clear of the risky excitement that can come with fast-rising growth stocks while focusing on firms with good future potential. One way to use this method is the "Affordable Growth" stock filter, which looks for companies with good growth measures, acceptable basic profit and money strength, and a stock price that is not too high. Cardinal Health Inc (NYSE:CAH) comes up as a choice from this filter, making a deeper examination of its basic facts useful.
Growth: The Main Force
The main attraction of a GARP choice is, expectedly, expansion. Cardinal Health’s basic report points to this as its best part, giving it a Growth score of 7 out of 10. The firm is showing forward movement on several lines.
- Recent Results: In the last year, Cardinal Health recorded a notable 24.32% rise in Earnings Per Share (EPS) with a 10.13% rise in Revenue.
- Lasting Path: Beyond a recent jump, the firm shows a steady history with an average yearly EPS rise of 8.62% over recent years.
- Future Predictions: Analyst estimates suggest this expansion will likely keep going, with predictions showing an average yearly EPS rise of 14.46% and Revenue rise of 9.66% in the next years. Importantly, the report notes that both EPS and Revenue growth speeds are increasing, shifting from past results to a stronger expected future.
This mix of good past results and a rising growth view is exactly what expansion-focused investors seek, creating the base requirement for the Affordable Growth filter.
Valuation: Judging the Cost of Expansion
Finding growth is only part of the task, the "reasonable price" part is what shapes the GARP idea. Cardinal Health gets a middle Valuation score of 5, meaning its current price shows a mix of its chances and its cost. The examination shows a varied scene that tends toward fairness in its setting.
- P/E Examination: The firm's standard Price/Earnings (P/E) ratio of 23.34 matches the wider S&P 500 average. More significantly, it is priced lower than about 65% of similar firms in the Health Care Providers & Services field, which has a much higher average P/E.
- Future and Cash Flow Measures: This relative price is clearer when looking forward. Cardinal Health's Price/Forward Earnings ratio of 19.66 is also lower than almost 64% of its field and is under the S&P 500 average. Also, its Price/Free Cash Flow ratio is lower than more than 87% of field rivals, meaning the market might be pricing the cash the business makes too low.
- Growth Adjustment: Keyly, the PEG Ratio, which changes the P/E for expected earnings growth, shows a proper price. This means the stock's cost fairly matches its planned growth path, instead of being too high on guesswork.
For the Affordable Growth method, a price that is not too high, and might even look good next to similar firms, is key. It gives a buffer and suggests the market has not completely priced the firm's future possibility.
Profit and Money Strength: The Supporting Base
Lasting expansion cannot be without a firm working and money base. Cardinal Health’s scores in Profit and Money Strength are both a middle 5, showing parts of force next to clear issues that investors must note. The Profit picture is split. The firm does very well in returns on money, with a Return on Invested Capital (ROIC) of 14.50% that beats more than 91% of its field. This shows very effective use of money to make profits. However, this force is balanced by very small margins, its Gross Margin of 3.70% and Operating Margin of 1.20% are low, showing the competitive, high-volume, low-margin character of the drug distribution business. The Money Strength score likewise shows two sides. The firm scores very high on ability to pay debts, with a strong Altman-Z score and a low Debt-to-Free-Cash-Flow ratio of 1.64, showing a low chance of failure and a good ability to reduce debt. On the other side, it has clear cash availability issues. Its Current and Quick Ratios are under 1, meaning possible troubles in meeting near-term bills without using working cash flow or more funding. This is a main risk item that needs watching. For the Affordable Growth filter, "acceptable" profit and strength are needed conditions. While Cardinal Health has clear soft points in margins and cash availability, its better money returns and good ability to pay debts give a balance that meets the line for review, though they show the need for continued careful study.
Summary and Next Steps
Cardinal Health Inc shows an example of the balances found in the Growth at a Reasonable Price method. It displays a thoughtful and rising growth picture combined with a price that seems fair, if not a chance, within its area. This matches straight with the main aim of finding fairly priced expansion. Yet, the examination also points to the need to look past top-level scores. The firm’s low working margins and limited cash position are important points that soften the full investment view. The basic report gives an organized way to measure these items. You can see the full, detailed basic examination for Cardinal Health here.
Cardinal Health is one of several possible choices that match a careful growth-seeking method. If you want to look at other stocks that meet similar rules of good expansion, fair price, and acceptable money bases, you can use the "Affordable Growth" filter yourself. More results from this filter method can be seen here.
Disclaimer: This article is for information only and is not money advice, a suggestion to buy or sell any security, or a support of any investment method. Investors should do their own full study and think about their personal money situation and risk comfort before making any investment choices.
