For investors looking for a mix of good expansion and fair prices, the "Growth at a Reasonable Price" (GARP) method provides a structured middle path. It avoids pursuing highly valued growth stocks by concentrating on firms with good, steady growth measures that also trade at prices which are not extreme. One way to find these opportunities is by using a systematic filter, searching for stocks with strong marks for growth, profit, and financial soundness, along with a price rating that implies the cost is not too high. This method tries to find companies where the expected growth story is backed by firm basics now, which could provide a steadier investment option.
A recent filter for such "reasonably priced growth" stocks highlighted The Descartes Systems Group Inc. (NASDAQ:DSGX), a company that offers cloud-based logistics and supply chain management software. The firm's basic profile, as shown in its detailed analysis report, makes a strong argument for why it matches this particular investment filter.
Growth Path: Good History, Firm Future
The central idea of any growth method is, expectedly, growth. Descartes does well here, receiving a solid Growth Rating of 7 out of 10. The company is not just suggesting future possibility; it has a history of steady increase.
- Past Results: Over the last few years, Descartes has achieved an average yearly Earnings Per Share (EPS) increase of about 30.9% and Revenue increase of almost 14.9%. In the latest year, revenue increased by a good 11.4%.
- Future Projections: The growth trend is likely to persist. Analyst forecasts indicate an average yearly EPS increase of around 21.9% and revenue increase of 10.6% for the next few years.
This mix of confirmed results and a believable future growth plan is exactly what GARP investors seek—a business that is already enlarging successfully.
Price Setting: A Higher Cost for Quality, Not an Extreme
While growth is necessary, paying a very high price for it can eliminate future gains. Descartes’ Valuation Rating of 5 indicates a varied but acceptable situation when considered through the GARP view. On its own, its Price-to-Earnings (P/E) ratio of 37.3 seems elevated compared to the wider S&P 500. However, this needs to be seen in context.
- Sector Setting: Within the competitive software sector, Descartes’ P/E ratio is actually similar to the industry average. More importantly, its Enterprise Value-to-EBITDA and Price-to-Free-Cash-Flow ratios are viewed as lower than many of its industry competitors.
- Growth Adjustment: The important measure for GARP is the PEG ratio, which modifies the P/E for projected earnings growth. Descartes’ low PEG ratio shows the market may not be completely accounting for its future growth, a sign of possible underrating compared to its growth speed. The report clearly states that its very good profit and projected growth could support its current price multiple.
For the reasonably priced growth method, a valuation score above 5 is critical—it shows the stock is not in the highest-priced group and that its cost might be sustained, if not supported, by its basic business quality and growth outlook.
Basic Soundness: Profit and Financial Soundness
Lasting growth cannot occur without a firm base. This is where Descartes’ profile becomes especially strong, with high marks in both Profit (8) and Financial Soundness (8). These supports lower risk and uphold the durability of the growth story.
- Very Good Profit: The company has very good margins, with an Operating Margin of 28.8% that beats more than 92% of its software industry competitors. Its Return on Invested Capital (ROIC) of 9.6% is also very good, showing efficient use of money to create earnings.
- Very Strong Financial Position: A notable characteristic is Descartes’ very clean financial record, having no debt. This provides it great operational and planning freedom, protecting it from interest rate changes and giving it plenty of funds to support internal growth or strategic purchases. Its Altman-Z score of 13.9 indicates almost no failure risk.
In the setting of a reasonably priced growth filter, these high soundness and profit ratings are essential filters. They make sure that the found growth is not driven by too much borrowing or accounting tricks but is based on a basically healthy and cash-producing business model.
Summary
The Descartes Systems Group Inc. shows the kind of company a "reasonably priced growth" filter is meant to find. It combines a clear and projected good growth path—the necessary driver for share price gains—with a price that, while not very low, seems acceptable compared to its sector and growth speed. Importantly, this growth is based on a foundation of very good profit and a very strong financial position, greatly lowering the investment risk. For investors using a GARP method, DSGX stands as a candidate where the entry price seems to consider today’s business while possibly not fully valuing its future potential.
This review of Descartes came from a systematic filtering process. Investors wanting to examine other stocks that fit similar standards of good growth, firm basics, and acceptable price can use the Reasonably Priced Growth filter themselves.
Disclaimer: This article is for information only and does not form financial guidance, a suggestion to buy or sell any security, or a support of any investment method. Investors should do their own study and think about their personal financial situation and risk comfort before making any investment choices.
