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 focuses on companies showing solid and lasting growth paths, but whose stocks are not priced at extreme levels. The aim is to sidestep the high-risk speculation common with very high-growth stocks while still taking part in significant capital gains. Searching for these "affordable growth" possibilities needs a multi-sided examination of a company's basics, measuring its growth possibility against its present price, earnings, and financial soundness.
One stock that recently appeared through such a methodical search is COMMVAULT SYSTEMS INC (NASDAQ:CVLT). The data protection and cyber resilience software company receives an overall basic rating of 6 out of 10, but its details show an interesting mix of positive points that fit with the affordable growth idea, especially in its growth and valuation measures.
A Notable Growth Picture
The center of any growth investment is, expectedly, growth. Commvault does well here, achieving a high Growth rating of 8. The company is showing solid expansion in both its recent results and its anticipated future.
- Solid Past Results: Over the last year, Commvault increased its Earnings Per Share (EPS) by a notable 20.82% and its Revenue by 18.63%. This is not isolated; the company displays a steady history with an average yearly EPS growth of 20.11% and revenue growth of 8.21% over recent years.
- Good Forward Outlook: Analyst projections indicate this trend will persist. EPS is predicted to grow at an average rate of 14.30% each year, while revenue growth is anticipated to rise to almost 10% per year. This pairing of good past results and a firm future view is necessary for a believable growth narrative.
For the GARP method, this verified and expected growth supplies the basic "G" – it shows the company is effectively enlarging its business and gaining market position in the important area of data security.
Valuation with Perspective
A stock with high growth can still be a bad investment if the cost is too steep. This is where the "Reasonable Price" part is important, and Commvault's Valuation rating of 5 indicates it is not extremely overpriced, particularly when measured against its industry.
- Comparative Value: While Commvault's Price-to-Earnings (P/E) ratio of 21.81 may appear high alone, perspective matters. About 72% of its software industry counterparts trade at a higher P/E ratio. Its Forward P/E of 19.43 costs less than almost three-quarters of the industry.
- Market Measure: The stock also seems fairly priced compared to wider market indicators. Its current P/E is lower than the S&P 500 average, and its Forward P/E is a clear discount to the index's average.
- Cash Flow Points: The valuation view is also helped by the Price-to-Free Cash Flow ratio, which shows Commvault costs less than nearly 79% of its industry rivals.
This comparative valuation placement is important for the affordable growth search. It shows the market has not yet completely priced the company's growth possibilities into an unreachable level, leaving possible space for gain as those growth expectations become real.
Supporting Basics: Earnings and Soundness
Lasting growth cannot happen alone; it must be backed by a profitable operation and a sufficiently strong financial position. Commvault's ratings in these areas give supportive, though varied, context.
The company gets a firm Profitability rating of 7. Main positive points include industry-best gross margins above 81% and getting better operating and profit margins. Its Return on Equity is very high at over 38%, doing better than most software companies. This high earnings ability helps support its current earnings multiples and indicates the company turns revenue into profit effectively.
The Financial Soundness rating of 5 shows a more detailed picture. On the good side, Commvault has no debt and very good liquidity, with current and quick ratios above 2.5. However, a high Debt-to-Equity ratio and a low Altman-Z score indicate some financial concern and significant use of outside funding, which is a point for investors to note. For the GARP method, a "acceptable" soundness score means the company is not in immediate trouble, but its financial setup deserves notice.
Final Points and More Study
COMMVAULT SYSTEMS INC presents an example in the affordable growth search thinking. It pairs a clear and expected strong growth driver—important for moving future stock prices—with a valuation that is fair compared to both its high-growth industry and the wider market. This central pairing is supported by very strong earnings measures, though investors should note the details in its financial soundness picture.
The stock's basic report notes this balance of chance and care. A more detailed look at the complete study is possible through the Commvault Fundamental Analysis Report.
For investors wanting to use this methodical way to find other possible choices, the search that found Commvault can be a beginning. You can look at more stocks that match similar standards for good growth, fair valuation, and acceptable supporting basics by using this Affordable Growth Stock Screener.
Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer or solicitation to buy or sell any securities. The information presented is based on data provided and should not be the sole basis for any investment decision. Investors should conduct their own thorough research and consult with a qualified financial advisor before making any investment decisions.
