For investors looking to balance the search for growth with some caution, the "Growth at a Reasonable Price" (GARP) method offers a practical middle path. This method tries to find companies that are increasing at a faster-than-average pace but are not selling at very high prices, sidestepping the high-risk extremes of pure growth investing and the slow movement sometimes seen in deep value investments. A useful way to apply this method is by using fundamental stock screeners that grade companies on important financial areas. By sorting for stocks with high growth grades, good profitability and financial soundness, and a fair valuation grade, investors can find candidates that match the affordable growth model.
One company that recently appeared from this kind of screening is EZCORP INC-CL A (NASDAQ:EZPW), a business offering pawn services and retail sales of used goods in the United States and Latin America.
Growth Path: A Main Positive
The most notable part of EZPW for a GARP method is its solid growth picture, which gives it a high grade in this area. The company shows good momentum in both its recent results and its future plans.
- Past Results: In the last year, EZPW increased its Earnings Per Share (EPS) by a notable 31.1%. This is not a single event; the company has maintained an average yearly EPS increase of almost 30% over multiple years. Sales growth is also good, with a 13.1% rise last year and a 9.1% average yearly growth rate in the past.
- Future Plans: Analysts believe this positive pattern will keep going. Sales are predicted to increase at an average rate of 11.8% in the next few years, which is faster than before. EPS growth is forecast to stay good at over 15% each year.
This steady and quickening growth is exactly what GARP investors want, as it supplies the basic driver for possible future stock price gains.
Valuation: Fair Considering the Potential
While growth is necessary, the "reasonable price" part is what shapes the method. EZPW's valuation numbers indicate it is not valued as if it were perfect, allowing for possible investor gain. The company's valuation grade shows a varied but generally acceptable view.
- Earnings Multiples: EZPW sells at a Price-to-Earnings (P/E) ratio of about 16.6 and a Forward P/E of 12.9. While these numbers are above the average for its consumer finance industry group, they are lower than the wider S&P 500 index.
- Growth Adjustment: An important number for GARP is the PEG ratio, which changes the P/E for planned growth. EZPW's low PEG ratio shows that its current valuation could be quite fair when its growth plans are considered. This implies the market may not be completely valuing the company's future earnings potential.
For an affordable growth screen, a valuation that is not very high compared to both the market and the company's own growth rate is important. It helps reduce potential loss and offers a buffer that pure growth stocks frequently do not have.
Financial Soundness and Profitability: A Steady Base
A GARP method naturally needs a company to be on firm ground to maintain its growth. EZPW's financial soundness and profitability grades supply this required base.
- Financial Soundness: The company shows very good cash availability, with a Current Ratio of 6.03 and a Quick Ratio of 4.69, pointing to a strong ability to cover near-term needs. Its debt amounts are workable, with a Debt-to-Equity ratio of 0.48, which is more favorable than many industry peers. These items lead to a strong ability to pay debts and lower financial danger.
- Profitability: EZPW is regularly profitable with positive earnings and cash flow. Its Return on Invested Capital (ROIC) of 6.9% is good within its industry and has gotten better lately. While its profit margin is under the industry middle point, it has been moving up, and its operating margin matches the sector average.
These parts of soundness and profitability are important for the affordable growth idea. They show that the company's growth is not driven by too much debt or poor methods, but is backed by a basically steady and getting better operational foundation.
Conclusion
EZCORP shows an example of the kind of company an affordable growth screen is made to locate. It combines a clear and planned good growth path in both earnings and sales with a valuation that does not seem too high, particularly when thinking about its growth rate. Backed by a very sound balance sheet and steady profitability, the company avoids the warning signs that often come with high-growth situations. For investors using a GARP approach, these combined traits make EZPW a stock deserving of more study.
You can review the detailed fundamental analysis for EZPW here.
Interested in finding more stocks that match the affordable growth model? You can view the full screening results and change the settings using our stock screener tool: Find Affordable Growth Stocks.
Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer to buy or sell any security. Investing involves risk, including the potential loss of principal. You should conduct your own research and consult with a qualified financial advisor before making any investment decisions.