COTERRA ENERGY INC (NYSE:CTRA): A GARP Stock with Strong Growth and a Reasonable Price

For investors looking to balance the search for growth with a degree of caution, the Growth At a Reasonable Price (GARP) method presents a viable middle path. This method, frequently called "affordable growth," aims to find companies that show good and lasting growth paths but are not selling at extreme prices. The aim is to steer clear of the speculative excess of high-priced stocks while still taking part in significant business growth. One instrument for applying this method is a systematic filter that selects for stocks with high growth scores, good profitability and sound finances, and a price that does not seem excessive. A recent prospect from such a filter is COTERRA ENERGY INC (NYSE:CTRA), a varied energy company with activities in major U.S. basins.

A Good Growth Picture

The central idea of any GARP method is, expectedly, growth. A company must show a clear capacity to grow its business to warrant investor attention. According to the fundamental analysis report for Coterra Energy, the company receives a solid Growth Rating of 8 out of 10. This score comes from notable recent results and encouraging future projections.

• Recent Revenue and Earnings Growth: In the last year, Coterra reported a 25.1% rise in revenue and a 26.7% jump in earnings per share (EPS), showing good operational performance.
• Lasting Historical Growth: Reviewing the last several years, the company has kept up a notable average yearly revenue growth rate of 21.4%.
• Positive Future View: Analysts anticipate this progress to persist, with projections indicating average yearly growth of about 16% for both revenue and EPS in the next few years.

This mix of good past results and an anticipated rise in earnings growth creates a firm base for the affordable growth argument. It implies the company is not just a temporary beneficiary but is establishing a base for continued growth.

Appealing Price Measures

Growth by itself is insufficient; it must be obtained at a sensible price. An expensive stock can eliminate the advantages of future growth if too much positive expectation is already included in the share price. Coterra’s Valuation Rating of 8 out of 10 signals the market may be valuing its shares cautiously compared to its potential.

Important price measures point to this possible chance:

• Price-to-Earnings (P/E): Coterra sells at a P/E ratio of 11.6, which is significantly less expensive than the S&P 500 average of 26.4 and under the industry average.
• Forward P/E: The forward P/E ratio, based on earnings projections, is at an even more appealing 8.6.
• Enterprise Value to EBITDA: This measure, which includes debt, also indicates the company is valued more affordably than a large portion of its industry competitors.

For a GARP investor, these numbers are important. They imply the market has not completely accounted for the company’s growth narrative, offering a possible buffer and space for price improvement if the growth path is achieved.

Supporting Basics: Profitability and Condition

While growth and price are the main filters, the method’s need for "acceptable" profitability and financial condition serves as an important risk control step. A company growing fast but using excessive cash or burdened by debt is not a lasting investment.

Profitability: Coterra gets a 7 out of 10 here, supported by industry-leading margins. Its gross margin of 82.8% and profit margin of 23.3% do better than over 90% and 80% of its competitors, in that order. This high level of profitability supplies the monetary resources to put money back into growth, give capital to shareholders, and endure industry declines.

Financial Condition: The company’s Health Rating is a more average 5 out of 10. The report mentions a firm solvency position, with a low debt-to-equity ratio of 0.25 and a sound debt-to-free-cash-flow ratio, signaling controllable borrowing. However, worries are noted about liquidity, specifically a quick ratio that implies limited reserve for immediate liabilities. This varied view in financial condition is a significant detail for investors to watch, as it stands for the main point of care within a generally firm fundamental picture.

Conclusion

Coterra Energy offers an example in the affordable growth filtering process. It has the necessary element of clear and projected growth, combined with price measures that do not seem high. Its better profitability supports the quality of its earnings, while its mostly firm balance sheet, with noted liquidity points for attention, offers a base for steadiness. This mix of traits, good growth, sensible price, acceptable profitability, and sufficient financial condition, matches closely with the ideas of the GARP method, which aims to capture growth without paying too much for it.

Investors curious about examining other companies that match this description of affordable growth can use a similar filter with the ChartMill stock screener.

---

Disclaimer: This article is for information only and is not financial guidance, an endorsement, or a proposal or request to purchase or sell any securities. The information shown is from supplied data and should not be the only reason for any investment choice. Investing includes risk, including the possible loss of initial investment. Always do your own research and think about talking with a registered financial consultant before making any investment choices.