Granite Construction Inc (NYSE:GVA) Offers Affordable Growth in Infrastructure

For investors looking for firms that mix good growth potential with fair prices, the "Growth at a Reasonable Price" (GARP) method presents a solid middle path. This tactic tries to sidestep the pitfalls of paying too much for uncertain high-growth while also avoiding stagnant value opportunities. One useful way to apply this is by using a systematic filter for "Affordable Growth," which selects for stocks showing good growth, firm profitability and financial condition, and a price that is not excessive. This process tries to find businesses that are increasing their earnings at a good rate but whose stock prices have not yet completely accounted for that future possibility.

GRANITE CONSTRUCTION INC (NYSE:GVA) is a national infrastructure contractor and materials producer, working through its Construction and Materials divisions. The company is an important participant in building and repairing roads, bridges, rail lines, and water-related projects throughout the United States. As federal infrastructure spending remains active, firms like Granite are set to be direct recipients of long-term, financed projects.

A look at Granite Construction's fundamental analysis report shows a profile that matches well with the affordable growth requirements. The company gets an overall fundamental score of 6 out of 10, but its results in the particular areas the filter targets present a more detailed picture.

Good Growth Path

The foundation of the GARP tactic is, expectedly, growth. Granite Construction does well here, getting a Growth score of 7. The company is not only getting larger but is doing so with notable speed in its net income.

• Earnings Per Share (EPS) Growth: The most notable number is the 61.71% year-over-year increase in EPS, which the report calls "quite impressive." The three-year average yearly EPS increase is also firm at 32.75%.
• Future Expectations: Analyst projections indicate this speed is likely to persist, with predicted average yearly EPS increase of 22.48% and sales increase of 9.62% in the next years.
• Quickening Sales: It is important that the predicted future sales increase rate is above the rate reached over the last several years, pointing to a quickening in the business forecast.

This firm mix of good past performance and an optimistic future growth profile is necessary for an affordable growth pick, as it supplies the basic "growth" driver that the tactic aims to benefit from.

A Fair Price

Finding growth is only part of the task; paying a sensible amount for it is what specifies the "reasonable" in GARP. Granite Construction's Valuation score of 6 indicates a varied but finally positive situation when seen through an industry and market view.

• Absolute vs. Relative Measures: On a pure basis, Granite's P/E ratio of 20.33 and forward P/E of 19.06 could seem fair to somewhat high. However, the setting is important.
• Industry Contrast: The stock costs less than 83% of similar firms in the Construction & Engineering industry judging by its P/E ratio and less than 87% judging by its forward P/E. This sizable price difference to the sector is a key supporting point.
• Market and Growth Consideration: The stock also trades below the current S&P 500 average P/E. Also, its low PEG ratio, which modifies the P/E for growth, shows the market may not be entirely accounting for the company's expected earnings rise.

For the affordable growth investor, this price situation is suitable: the company is growing firmly but is valued at a noticeable discount to both its industry and the wider market, suggesting the growth narrative may be underappreciated.

Supporting Basics: Condition and Earnings

A growth narrative constructed on weak finances is a hazardous idea. The affordable growth filter needs acceptable scores in Financial Condition and Earnings (both a score of 5 for GVA) to make sure the company is on firm footing to carry out its plans.

• Financial Condition (Score 5): Granite's balance sheet displays a workable debt level, with a Debt-to-Equity ratio of 0.84 matching its industry. Its Debt-to-Free-Cash-Flow ratio of 3.86 is a good signal, showing it could repay its debt in under four years from its cash flow, doing better than two-thirds of similar firms. While liquidity ratios are middling, the overall stability picture is steady.
• Earnings (Score 5): The company is reliably profitable, with positive income and operating cash flow in recent years. Its Return on Equity of 15.79% is acceptable, doing better than many industry rivals. Margins, while not outstanding, have displayed progress, which is a good direction for future income improvement.

These "acceptable" scores in condition and earnings are important filters. They help avoid firms that are growing through too much borrowing or are not profitable, thus lowering investment risk and raising the durability of the growth argument.

Summary

Granite Construction Inc provides an example of the affordable growth idea. It has a clear and quickening earnings growth profile, pushed by its place in a supportive infrastructure environment. Yet, its shares are priced at a discount compared to its own industry and the market, as noted in its fundamental report. Backed by a financially steady base and reliable profitability, the company seems to provide the growth possibility that GARP investors look for, without the high price often connected with high-performing growth stocks.

This review of GVA came from a particular investment filter. Investors curious about finding other firms that meet similar standards of good growth, fair price, and acceptable financial soundness can examine more outcomes using the Affordable Growth stock screener.

Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation to buy or sell any security, or an endorsement of any investment strategy. Investors should conduct their own research and consider their individual financial circumstances and risk tolerance before making any investment decisions.