For investors looking to balance the search for growth with fiscal care, the "Growth at a Reasonable Price" (GARP) method offers a solid middle path. This method avoids chasing highly valued stocks, focusing instead on companies with steady growth that trade at prices considered fair by basic measures. By looking for stocks with good growth, firm profitability, and sound finances, all while avoiding high prices, investors try to find businesses set for future gains without paying too much for that chance now. One stock that recently appeared from this "Affordable Growth" filter is DYNATRACE INC (NYSE:DT).
A Look at Basic Strength
According to a full basic analysis report from ChartMill, Dynatrace gets an overall basic rating of 7 out of 10. This score comes from a review across five key areas: Growth, Valuation, Health, Profitability, and Dividend. For a GARP method, the relationship between the first four parts is especially important. Dynatrace’s profile shows a company with clear positives in growth and business performance, paired with a valuation that, while not cheap, seems fair given its quality and path.
Growth: The Main Driver
The main attraction for any growth-oriented method is, expectedly, a company's ability to expand. Dynatrace does well here, getting a high Growth rating of 8. The company is not only growing, it is doing so quickly.
- Past Results: Over the last year, revenue increased by 18.5%, while earnings per share (EPS) rose by 18.18%. The longer-term pattern is stronger, with an average yearly EPS increase of 35.19% and revenue increase of 25.49% over recent years.
- Future Outlook: Experts expect this trend to persist, though at a somewhat slower rate. Estimated future growth rates are near 17.43% for EPS and 14.93% for revenue each year. This forward-looking positive is key for the GARP idea, as it indicates the company's growth story stays in place.
This steady, double-digit growth in both sales and profits is exactly what the "affordable growth" filter tries to find, companies with a confirmed and expected path for expansion.
Valuation: Checking the Cost
A stock's valuation is the "reasonable price" test in the GARP method. Dynatrace receives a Valuation rating of 5, showing a varied but ultimately acceptable picture when balanced with its growth profile.
- Basic Measures: On their own, some common measures seem high. The company's Price/Earnings (P/E) ratio of 28.42 and Forward P/E of 23.28 are at or close to the wider market average.
- Comparative and Growth-Considered View: The valuation picture improves with comparison. Next to other software industry companies, Dynatrace costs less than most based on its P/E, Forward P/E, Enterprise Value/EBITDA, and Price/Free Cash Flow ratios. Also, the PEG ratio, which includes earnings growth, indicates the current P/E matches its growth outlook. The analysis states that the company's very good profitability may support its valuation level.
This detailed valuation score of 5 fits the filter's need for stocks that are "not highly priced." It suggests investors are paying an average or industry-low price for a company increasing much faster than normal.
Profitability and Health: The Base for Lasting Power
Good growth at a fair price is less attractive if the core business is weak. The GARP method clearly selects for adequate profitability and financial health to confirm lasting power. Dynatrace scores well on both points, with a Profitability rating of 8 and a Health rating of 8.
- Profitability Positives: The company has very good margins, with a gross margin above 81% and a profit margin of 27.33%, putting it in the best group of its industry. Its returns on assets and equity are also better than most peers. This high-margin, efficient business model is a main quality feature.
- Financial Health: Dynatrace holds a very strong balance sheet with no debt, leading to a high Altman-Z score that shows very little chance of failure. While its current and quick ratios are ordinary for the industry, its overall financial soundness is very good. This financial strength gives stability and option to handle economic changes and fund future growth.
These bases of profitability and health are essential for the affordable growth filter. They give assurance that the company's growth rests on a firm operational and financial base, lowering the chance it will struggle.
Final Thoughts and More Study
Dynatrace offers a solid example for the Growth at a Reasonable Price method. The company shows strong, steady growth in both sales and profits, backed by top-tier profitability measures and a very strong, debt-free balance sheet. While its valuation is not low, it seems warranted, and even interesting next to its industry, when considered alongside its growth speed and business quality. This mix of traits is exactly what the "Affordable Growth" filtering process is made to find.
For investors wanting to examine other companies that fit similar standards of acceptable growth, sound basics, and fair valuation, more outcomes are available by checking the Affordable Growth filter on ChartMill.
Disclaimer: This article is for information only and is not financial advice, a suggestion, or an offer to buy or sell any security. Investing has risk, including the possible loss of original funds. You should do your own study and talk with a qualified financial advisor before making any investment choices.
