For investors looking for a mix of solid increase and fair cost, the "Growth at a Reasonable Price" (GARP) or "Affordable Growth" method provides a practical option. This method tries to find companies that are increasing their earnings and sales at a good rate and are also priced at levels that do not require flawless future results. It avoids the high speculation common with extreme-growth stocks and steers clear of value stocks that are low-priced due to fundamental problems. By concentrating on businesses with good fundamentals, like sound financial statements and steady earnings, this method looks for durable investments for a portfolio.
One stock recently identified by an Affordable Growth filter is HEALTHEQUITY INC (NASDAQ:HQY), a main company offering technology-based services for health savings accounts (HSAs) and similar consumer-directed benefits. The filter, which selects for stocks with good increase, acceptable earnings and financial soundness, and a fair price, indicates HQY may deserve more examination from investors focused on GARP.
Growth Path: Solid History and Projected Future
The central idea of any growth method is, expectedly, growth. For an investment to be seen as "affordable," its increase must be significant enough to support its cost. HealthEquity’s fundamental report features a company in a good phase of increase, with both past results and analyst forecasts creating an optimistic view.
- Notable Historical Increase: Over the last year, HQY has increased its Earnings Per Share (EPS) by a notable 22.15%, with an average yearly EPS increase of 12.72% over recent years. Sales increase is similarly solid, rising 12.20% last year and averaging 17.66% yearly over a multi-year span.
- Optimistic Projected View: The growth story is predicted to persist. Analysts estimate EPS will increase by 19.36% yearly in the next few years, which shows a quickening from the past pattern. Sales are also forecast to keep a good increase rate of 8.68% per year.
This pairing of solid results and a hopeful forecast is exactly what growth investors look for. The quickening in estimated EPS growth is a specifically important sign of gaining business strength.
Price Evaluation: Fair Considering the Situation
A stock can show excellent growth but still be a bad investment if its cost is too steep. The Affordable Growth method specifically filters for stocks that are "not overpriced," making price a key check. HealthEquity’s price profile shows a varied but finally fair view when compared to its growth and industry competitors.
- P/E Ratios in Context: HQY is priced at a Price/Earnings (P/E) ratio of 24.74 and a Forward P/E of 20.14. While these numbers may appear high alone, it is important to see them in context:
- Both ratios are priced lower than the industry average, doing better than about 62% of peers in the Health Care Providers & Services field.
- The Forward P/E of 20.14 is also a bit under the current S&P 500 average.
- Growth Adjustment: Maybe the most informative measure for a GARP method is the PEG ratio, which modifies the P/E for expected growth. The report states that HQY’s "low PEG Ratio... shows a rather inexpensive price of the company." This directly connects the cost paid to the growth investors are purchasing, a key part of the affordable growth idea.
The price rating of 5/10 shows this balance—it is not very inexpensive, but it is not overly costly given the company's growth characteristics and industry position.
Supporting Fundamentals: Soundness and Earnings
Lasting growth seldom happens on weak footing. The Affordable Growth filter’s needs for acceptable earnings and financial soundness are important screens to confirm quality. HealthEquity performs well here, giving a good base for its growth story.
- Good Earnings (Rating: 7/10): The company has excellent margins, with a Profit Margin of 14.86% that does better than 99% of its industry peers. Its Return on Equity (8.99%) and Return on Invested Capital (7.20%) are also in the better half of the industry. High earnings supply the resources for reinvestment and stability during economic slowdowns.
- Very Good Financial Soundness (Rating: 7/10): HealthEquity’s financial statements seem solid. It has a very strong cash position, with a Current Ratio and Quick Ratio both above 4, showing good ability to meet short-term needs and doing better than over 90% of the industry. Its Debt/Equity ratio of 0.46 is seen as healthy. A strong Altman-Z score further points to a low short-term chance of financial trouble.
These supports of earnings and soundness lower the fundamental risk linked to the investment, helping the case that the company’s growth is based on a stable operational and financial base.
Summary and Additional Study
Based on a numerical study of its fundamentals, HEALTHEQUITY INC shows a profile that matches the goals of an Affordable Growth method. It displays a practical mix of quickened earnings growth, a price that seems fair compared to that growth and its competitor group, and supported by good earnings and sound financial statements. For investors filtering for companies that may provide growth without extreme risk, HQY stands as a notable candidate deserving of more detailed investigation.
You can examine the complete, detailed fundamental study for HQY here.
Interested in finding other stocks that match this Affordable Growth profile? Our prepared filter is made to find similar options. You can find more outcomes and adjust your search using the Affordable Growth stock screener.
Disclaimer: This article is for information only and does not form financial guidance, a suggestion to buy or sell any security, or a support of any investment method. The study is based on data and ratings from ChartMill, and investors should do their own study and think about their personal financial situation before making any investment choices.
