For investors looking to balance the search for growth with fiscal care, the "Growth at a Reasonable Price" (GARP) or "Affordable Growth" strategy offers a practical middle path. This method tries to find companies with good growth paths but whose shares are not priced too high. It avoids the speculative excitement around high-growth stocks while steering clear of value traps, companies that are inexpensive for a cause. By using a fundamental screening process that looks at stocks across five main areas, Growth, Valuation, Health, Profitability, and Dividend, investors can methodically find candidates that mix potential expansion with good financial status and fair prices. One stock that recently came from such a screen is CBRE GROUP INC - A (NYSE:CBRE).
A Look at Fundamental Health
A check of CBRE's detailed fundamental analysis report shows a varied but finally positive profile, getting an overall rating of 5 out of 10. This score puts it in the middle compared to others in the Real Estate Management & Development industry, but the details of its parts are where the "affordable growth" idea becomes more visible. The screen specifically looked for stocks with a Growth rating above 7, Valuation above 5, and at least acceptable scores in Health and Profitability. CBRE's ratings match this filter: a Growth score of 7, Valuation of 5, Profitability of 6, and Health of 5.
Growth: The Main Force
The main attraction for a GARP investor is, expectedly, growth. CBRE's Growth rating of 7 is fueled by good past performance and positive future estimates. The company is showing solid expansion in both revenue and earnings.
- Revenue Growth: Over the past year, revenue increased by a notable 14.61%. This is not isolated, as the company has kept a sound 8.40% compound annual growth rate over recent years. Analysts think this pace will continue, forecasting average yearly revenue growth of 9.04% moving forward.
- Earnings Growth: The earnings story is more pronounced. Earnings Per Share (EPS) rose by 43.41% in the last year. While the longer-term yearly EPS growth is a more steady 6.61%, the trend is speeding up. Future EPS is expected to increase at almost 18% yearly, showing the company's growth is becoming more earnings-positive.
This steady and quickening growth across main financial measures is exactly what the Affordable Growth screen looks for, as it points to a business that is effectively growing its operations.
Valuation: The "Reasonable Price" Test
Good growth by itself is insufficient; it must be found at a price that does not already account for many years of future performance. This is where valuation measures are important for the strategy. CBRE's Valuation rating of 5 indicates a neutral position, but a closer view shows a stock that is fairly priced, particularly within its own sector.
- Relative Value: While CBRE's Price-to-Earnings (P/E) ratio of 26.79 is similar to the wider S&P 500, it is valued lower than 73% of its industry peers, whose average P/E is above 39. This industry-relative price difference is a key point.
- Future-Looking Measures: The view gets better when looking forward. CBRE's Forward P/E ratio of 21.20 is less expensive than 82.5% of the industry. Other measures like Enterprise Value to EBITDA and Price to Free Cash Flow also show CBRE is trading at a lower price than most competitors.
- Growth Adjustment: The PEG ratio, which changes the P/E for expected growth, shows a proper valuation for CBRE. This is important for GARP investing—it suggests the market price suitably reflects the growth potential without too much positive outlook.
For an investor using this screen, a valuation score above 5 helps prevent paying too much. CBRE’s valuation, especially its appeal compared to a historically high-priced industry, backs the "reasonable price" part of the idea.
Supporting Fundamentals: Profitability and Financial Health
A growth story based on weak financials is uncertain. The Affordable Growth strategy needs acceptable scores in Profitability and Financial Health to make sure the company can maintain its expansion. CBRE's scores of 6 and 5, in order, give this base support.
Profitability is a definite positive. The company has very good returns on equity (14.39%) and invested capital (6.76%), doing better than most of its peers. Its profit and operating margins are also higher than the industry median. While these margins have faced some recent squeeze, a point to watch, the basic return measures show an effective and profitable business model.
Financial Health gives a more neutral view. The company's Altman-Z score is good, showing low short-term bankruptcy risk and doing better than 75% of the industry. Its debt levels, as seen in the Debt-to-Equity ratio, match the industry average. However, liquidity ratios (Current and Quick Ratios) are lower than many peers, which is a recognized area of lesser strength. The overall health score of 5 suggests a balance sheet that is sufficient, not outstanding, but without serious warnings that would oppose the growth-and-value story.
Conclusion
CBRE Group shows an example of the kind of opportunity an Affordable Growth screen is made to find. It is a market leader in commercial real estate services displaying quickening earnings growth and solid revenue expansion, all while trading at a valuation that is interesting relative to its own sector. The company's good profitability measures give trust in the quality of its growth, and its financial health, while not a strength, does not show urgent worries.
This mix, good growth at a fair price, backed by acceptable fundamentals, makes CBRE a stock worth more study for investors following the GARP philosophy. It shows the strategy's aim: to find companies where the growth story is real and the entry price does not require too much trust.
For investors wanting to look at other stocks that fit similar standards of good growth, fair valuation, and sound fundamentals, you can see the full list of results from the Affordable Growth screen here.
Disclaimer: This article is for information only and does not make up financial advice, a suggestion, or an offer or request to buy or sell any securities. The analysis shown is based on data and ratings from ChartMill.com and should not be the only base for any investment choice. Investing in stocks includes risk, including the possible loss of principal. Always do your own complete research and think about talking with a qualified financial advisor before making any investment decisions.
