For investors looking to balance the search for growth with prudence, the "Growth at a Reasonable Price" (GARP) method offers a practical middle path. This method tries to find companies that are increasing their earnings and revenues at a good rate, but whose shares are not offered at very high prices. It is a way that avoids the speculation of pure momentum investing while also avoiding the stagnant stocks that can trouble very cheap ones. One instrument for finding these chances is a systematic filter for "Affordable Growth," which selects for stocks with good growth scores, firm basic profitability and financial condition, and a price that does not seem high. A recent name found by this filter is Exelixis Inc (NASDAQ:EXEL).
A Focus on Oncology Innovation
Exelixis Inc works as a dedicated oncology company, finding, creating, and selling new medicines for hard-to-treat cancers. The company's main product, cabozantinib, is sold under the names CABOMETYX and COMETRIQ for different advanced cancers, including renal cell carcinoma and hepatocellular carcinoma. With a list of developments that includes the experimental drug zanzalintinib, Exelixis has established a commercial base while still putting money into its future expansion. This way of operating, focused on targeted cancer treatments, gives the background for looking at its basic profile through the idea of affordable growth.
Strong Growth Path
The central idea of the GARP method is finding real growth, and Exelixis shows this with a ChartMill Growth Rating of 7 out of 10. The company's financial reports display a firm expansion story, especially in profitability.
- Earnings Growth: The company's Earnings Per Share (EPS) increased by a notable 44.51% over the last year. Reviewing the past, the average yearly EPS increase over recent years is a firm 12.65%.
- Revenue Increase: Revenue increase is also good, having risen by 9.93% in the last year with a firm historical average yearly increase rate of 17.51%.
- Future Predictions: Analysts think this progress will keep going. The EPS is predicted to increase by about 25.76% each year in the next few years, while revenue is expected to rise at an average rate of close to 10% per year.
This mix of firm past results and positive future estimates is exactly what growth-focused investors look for. The quickening in predicted EPS increase compared to the past rate is a specifically positive sign for the GARP approach.
Good Valuation Measures
Growth by itself is not sufficient for the affordable growth filter; the price must be sensible. Exelixis does well here too, getting a high ChartMill Valuation Rating of 8. The review shows the stock seems inexpensive compared to its industry, even if some simple measures seem high.
- Industry Price Difference: While the company's Price/Earnings (P/E) ratio of 17.46 might appear high alone, it is much less expensive than 95% of similar companies in the biotechnology industry, where the average P/E is above 63.
- Future Value: The Price/Forward Earnings ratio of 13.44 gives a better view of value based on future profits. On this measure, Exelixis is less expensive than almost 97% of its industry rivals.
- Cash Flow and EBITDA: The valuation picture is supported by other ratios. The company's Price/Free Cash Flow and Enterprise Value/EBITDA ratios are also less expensive than about 96% of the industry, suggesting the market may not be completely valuing its ability to generate cash.
This difference between the company's growth picture and its price compared to the industry is a main point. For a GARP investor, it implies the market may be offering an expanding company at a price more often linked with slower-growth similar companies.
Supported by Profitability and Financial Condition
Lasting growth at a sensible price must be based on a stable base. This is why the affordable growth filter includes checks for profitability and financial condition, to steer clear of companies expanding unsustainably or on weak footing. Exelixis scores well in both areas, with a Profitability Rating of 8 and a very good Health Rating of 9.
The company's profitability measures are strong:
- It has a Return on Equity of 31.37% and a Profit Margin of 29.63%, each doing better than over 97% and 95% of industry similar companies, in that order.
- Its Operating Margin of 35.85% is also with the best in the field.
Maybe even more positive is the company's clean balance sheet, an unusual thing in the expensive biotech industry:
- Exelixis has no debt, giving a Debt/Equity ratio of zero.
- It keeps good cash availability, with a Current Ratio of 3.75 and a Quick Ratio of 3.68, showing good ability to meet near-term needs.
- A very high Altman-Z score of 12.20 points to low short-term bankruptcy risk and financial steadiness.
This mix of high profitability and very strong financial condition lowers the basic risk for investors. It means the company's expansion is paid for by its own work and cash, not by using a weak balance sheet, making the growth story more lasting and the sensible price even more noteworthy.
Conclusion
Exelixis Inc shows a profile that matches closely with the goals of an affordable growth or GARP method. The company is producing, and is predicted to keep producing, firm growth in earnings and revenue. Importantly, this growth is offered at a price that seems low compared to its high-growth biotechnology similar companies. This possible "value within growth" is made less risky by the company's excellent profitability measures and very good financial condition, described by firm margins and a balance sheet with no debt.
For investors using this approach, Exelixis acts as a clear example of how systematic filtering can find companies that are not just expanding, but expanding from a place of strength and at a price that tries to give some protection. A complete list of these basic ratings is in the full ChartMill Fundamental Analysis Report for EXEL.
Interested in finding more stocks that match this Affordable Growth description? You can use the filter yourself and see the present results here.
Disclaimer: This article is for information only and does not make financial advice, a suggestion to buy or sell any security, or a support of any investment plan. All investments have risk, including the possible loss of the amount invested. Readers should do their own study and talk with a qualified financial advisor before making any investment choices.
