For investors looking for a mix of solid increase and fair cost, the "Growth at a Reasonable Price" (GARP) or "Affordable Growth" method presents a viable option. This method tries to find firms that show good, lasting increase but are not selling at very high prices that assume all future gains. By applying a methodical filter that looks for strong increase grades together with acceptable marks in earnings, financial soundness, and price, investors can find stocks that may present a good balance of risk and return, steering clear of both risky high-increase tales and slow value choices.
One firm that recently appeared from an Affordable Growth filter is INTUIT INC (NASDAQ:INTU). The maker of TurboTax, QuickBooks, and Credit Karma serves as an example of how an established yet active firm can match this investment view.
A Base of Good Increase
The central idea of any increase-focused method is, expectedly, increase. Intuit’s fundamental report shows a firm that is achieving this with regularity. The firm's Increase grade of 7 out of 10 is supported by notable past results and firm future outlooks.
- Past Results: Over the last year, Intuit increased its Revenue by 17.14% and its Earnings Per Share (EPS) by a stronger 23.88%. The longer-term patterns are equally notable, with yearly Revenue increase of 19.65% and EPS increase of 20.77%.
- Future Outlooks: Analysts forecast this pace to keep going, though at a slower speed. Projected average yearly increase rates of 12.57% for Revenue and 15.50% for EPS show the firm is not near a stop.
This pairing of good past results and a believable increase path is exactly what affordable growth filters aim to find, firms where increase is a shown fact, not just a hopeful forecast.
Price in the Setting of Quality
A stock can show excellent increase but still be a bad investment if the cost is too great. This is where the "reasonable price" or "affordable" part becomes vital. Intuit receives a Price grade of 6, which, within the setting of its high quality and increase profile, indicates the market is not valuing it at a level that accounts for all future success.
Important price measures from the report give a detailed view:
- Price/Earnings (P/E): At 20.65, Intuit’s P/E ratio is seen as high on a basic level. However, relative checks are more telling. This ratio is lower than almost 69% of its software industry group and is under the present S&P 500 average.
- Forward-Looking Measures: More significantly, forward-looking measures seem more appealing. A Price/Forward Earnings ratio of 16.10 is viewed as a "fair price," and it is lower than about 75% of the industry. Likewise, its Enterprise Value to EBITDA and Price/Free Cash Flow ratios are better compared to sector averages.
- Increase Adjustment: The PEG ratio, which changes the P/E for expected earnings increase, shows a fair price. The report states that Intuit's excellent earnings and expected earnings increase of over 15% may support its present multiple.
For an affordable growth method, this price setting is key. It indicates investors are not paying a speculative high price but are instead buying a proven increase firm at a cost that still allows for possible gain as increase happens.
The Supporting Bases: Earnings and Financial Soundness
Lasting increase cannot exist without a profitable business model and a firm financial sheet. These are the supporting bases that the filtering method needs to be "acceptable" or better, and Intuit does well here. Its Earnings grade is a high 8, while its Financial Soundness grade is a firm 7.
- Earnings Strength: Intuit works with very good margins. Its Gross Margin of almost 80%, Operating Margin of 26.72%, and Profit Margin of 21.19% all place in the top group of the software industry. Returns on capital are equally notable, with a Return on Invested Capital (ROIC) of 16.53% greatly above its cost of capital, showing true value generation.
- Financial Strength: The firm’s financial sheet is strong. An Altman-Z score of 7.28 shows very low failure risk, and a low Debt-to-Equity ratio of 0.28 shows little use of debt funding. Perhaps most notably, its debt compared to free cash flow is below 1, meaning it could in theory pay off all its debt with less than a year's cash generation, a sign of very good solvency.
These points are not minor, they are central to the affordable growth idea. High earnings fund future increase plans from within, while a good financial position gives stability during economic drops and room for strategic buys, like its acquisitions of Mailchimp and Credit Karma.
Summary and Next Steps
From a check of its fundamental report, Intuit Inc. shows a profile that fits well with the goals of an affordable growth method. It shows a strong mix of steady, double-digit increase in revenue and earnings, selling at a price that, while not low value, is fair relative to its quality and sector. This is all backed by top-level earnings measures and a very sound financial sheet.
It is significant to state that the firm's dividend, while increasing steadily, is small with a return below 1%, making it a minor part of the investment view for this method, which is mainly centered on price gain.
Intuit's complete fundamental analysis report, which lists all the measures talked about, can be seen here.
For investors wanting to find other firms that match this balance of increase, price, and fundamental strength, the Affordable Growth filter that found Intuit can be a beginning point. You can look at more possible choices from this filter here.
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Disclaimer: This article is for information only and does not make financial guidance, a suggestion, or a bid or request to buy or sell any securities. The information given is based on supplied data and should not be the only base for any investment choice. Investors should do their own review and talk with a qualified financial advisor before making any investment choices. Past results do not show future outcomes.
