For investors looking to balance the search for growth with a degree of caution, the Growth at a Reasonable Price (GARP) or "affordable growth" method offers a practical middle path. This method seeks to find companies with good and lasting growth, but whose shares are not trading at very high prices. The aim is to steer clear of the speculation that can surround top performers while still gaining from the progress of developing businesses. A useful way to apply this is by filtering for stocks with high marks in growth and good results in profitability and financial soundness, along with a price that seems fair. One company that recently appeared from this filter is GOLD FIELDS LTD-SPONS ADR (NYSE:GFI).
A High-Scoring Fundamental Profile
A look at Gold Fields' detailed fundamental analysis report shows a strong total score of 8 out of 10, positioning it well in the metals and mining sector. This score comes from an evaluation across five key areas: Growth, Valuation, Health, Profitability, and Dividend. For an affordable growth method, the notable marks are in Growth and Valuation, which are supported by very high scores in Profitability and Health.
Strong Growth Path
The company’s Growth mark of 8 is a central part of its attraction. This score shows forceful momentum in both its recent results and future forecasts.
- Very Strong Recent Growth: Over the last year, Gold Fields reported a very high 267.75% growth in Earnings Per Share (EPS) and a 135.10% increase in Revenue. This is not just a single-year event, as the company has shown a good multi-year history.
- Good Forward Outlook: Analysts estimate this momentum will persist, though at a more maintainable rate. Estimated yearly EPS growth of 21.14% and Revenue growth of 13.27% over the next few years show the company is not near a stop.
This pairing of very strong past growth and a sound projected future path is exactly what growth-focused investors seek. It implies the company is effectively running its operations and benefiting from positive sector conditions, like high gold prices.
Attractive Valuation Measures
Maybe the most important part for the "affordable" aspect of the method is valuation. Gold Fields receives a top-level Valuation mark of 9, indicating its shares are priced appealingly compared to its financial results.
- Low-Priced Compared to Peers and Market: The stock trades at a Price-to-Earnings (P/E) ratio of 8.26, which is less expensive than almost 99% of its sector peers. When measured against the wider S&P 500's average P/E of about 24.75, the difference is even larger.
- Low-Priced on Cash Flow and Future Earnings: The appealing valuation applies to other important measures. The company is valued lower than about 95% of the sector based on its Enterprise Value to EBITDA and is also low-priced on a Price-to-Free-Cash-Flow basis. Its forward P/E ratio of 7.51 further supports that even expected future earnings are not being valued at a high level.
This large valuation difference is what makes Gold Fields an interesting option. Investors are basically paying a low price for a company that is increasing earnings quickly and producing significant profit.
Supporting Elements: Profitability and Financial Health
A growth story at a low price can sometimes hide basic problems. However, Gold Fields' high scores in Profitability (9) and Financial Health (7) give important support, lessening that concern.
- Very High Profitability: The company is very efficient. Its Return on Equity of 54.48% and Profit Margin of 37.57% are near the top in its field, showing very good management performance and pricing ability.
- Sound Financial Base: The Health mark confirms the company is on firm footing. It produces value much higher than its cost of capital, and key stability measures like its Debt-to-Free-Cash-Flow ratio of 1.37 are very good, showing it can repay debts quickly from its cash production. While some standard liquidity ratios are typical for the sector, the report states this is probably not a problem given the good overall stability and profitability.
These factors are important for the affordable growth method. High profitability suggests the growth is of good quality, driven by operational skill rather than financial tactics. Good financial health lowers the chance of a growth halt from balance sheet pressure, making the growth path more lasting.
Conclusion
Gold Fields presents an interesting example for the affordable growth investment method. It joins a forceful, clear growth story with a valuation that seems separate from that performance. The company is not only growing, it is doing so profitably and from a state of financial soundness. This match of strong growth, top-level profitability, acceptable financial health, and a very low valuation is exactly the type of profile filters are made to find.
For investors wanting to examine other companies that match this "Affordable Growth" type, more results can be seen by checking the set filter on ChartMill.
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 analysis is based on data and marks provided by ChartMill, and investors should perform their own research and talk with a qualified financial advisor before making any investment decisions.