LPL FINANCIAL HOLDINGS INC (NASDAQ:LPLA): A GARP Stock Balancing Growth and Value

For investors looking to balance the search for growth with a degree of caution, the Growth At a Reasonable Price (GARP) method presents a solid middle path. This method looks for companies with good and steady earnings increases, but whose stocks are not valued at the high levels common to aggressive growth stocks. By checking for sound basics in growth, profit, and financial condition, while also requiring a fair price, the method seeks to find businesses that are both expanding and priced accessibly, possibly providing a good balance of risk and reward.

LPL FINANCIAL HOLDINGS INC (NASDAQ:LPLA) recently appeared from such an "Affordable Growth" filter. As the country's biggest independent broker-dealer, LPLA offers a full platform of technology, brokerage, and advisory services to financial advisors, who then serve individual investors. This model has placed the company to gain from the lasting shift toward financial guidance and wealth management. An examination of its basic analysis report shows a picture that fits the central ideas of the GARP approach.

Growth: A Solid Engine

The main attraction for any method focused on growth is, expectedly, growth. LPLA shows a good history and likely future progress, receiving a ChartMill Growth Rating of 7 out of 10.

• Past Performance: The company has produced notable historical growth. In the last year, Revenue rose by 35.19% and Earnings Per Share (EPS) increased by 21.26%. On average, revenue has increased by more than 17% each year in recent years.
• Future Expectations: Analyst projections indicate this progress is likely to persist. Revenue is expected to grow at an average yearly rate of 19.26% in the next few years, while EPS is predicted to rise by 10.60% annually.

This pairing of good historical results and a solid projected growth path is a key part for the affordable growth idea, supplying the basic "growth" driver.

Valuation: The "Affordable" Checkpoint

A stock's growth narrative must be weighed against its cost. This is where the "reasonable price" part of GARP is vital, and LPLA's valuation numbers show a varied but mostly positive view, leading to a ChartMill Valuation Rating of 5.

• P/E Ratios: With a trailing Price-to-Earnings (P/E) ratio of 19.40, LPLA trades below both the S&P 500 average (26.61) and its own Capital Markets industry group average (40.15). Its forward P/E of 15.57 is also appealing compared to wider market and industry forward multiples.
• Growth Compensation: Maybe more revealing is the PEG Ratio (NY), which modifies the P/E for anticipated earnings growth. LPLA's low PEG ratio shows the market may not be completely accounting for its future growth possibility, a notable sign for GARP investors.
• Enterprise Value: The company also seems inexpensive based on its Enterprise Value to EBITDA ratio compared to over 80% of its industry group.

While not extremely low-cost, these numbers imply investors are not paying a high extra amount for LPLA's growth, meeting the affordability requirement.

Profitability & Financial Health: The Supporting Base

Lasting growth cannot happen without a firm operational and financial footing. LPLA's scores here,a Profitability Rating of 6 and a Financial Health Rating of 5,point to an adequate, though not outstanding, base that backs the growth story.

• Profitability Strengths: The company does very well in returns on capital. Its Return on Invested Capital (ROIC) of 10.03% and Return on Equity (ROE) of 16.52% are better than most industry rivals, showing effective use of shareholder capital.
• Profitability Concerns: These good returns are partly balanced by narrower margins. Both its Profit Margin (5.35%) and Operating Margin (12.49%) are in the bottom half of the industry, a detail for investors to note regarding operating efficiency.
• Financial Health: The company's balance sheet displays very good liquidity, with Current and Quick Ratios of 2.38 that give enough coverage for near-term debts. However, a Debt-to-Equity ratio of 1.51 shows a notable use of debt financing, which is typical in its industry but includes an element of financial risk, especially when interest rates are higher.

For the affordable growth method, these ratings verify that the company is basically healthy and creating adequate returns, which helps explain its valuation and supports its capacity to finance future growth.

Conclusion

LPL FINANCIAL HOLDINGS INC illustrates the affordable growth filtering method. It has a strong growth driver, shown by good historical and expected increases in revenue and earnings. Importantly, this growth is available at a price that seems fair compared to both the market and its own growth pace, as seen in its P/E discounts and appealing PEG ratio. While its margin picture and debt amount are points to observe, its better returns on capital and good liquidity give an adequate basic foundation. For investors using a GARP method, LPLA stands as a candidate where growth possibility and price awareness meet.

Interested in finding more stocks that match this description? You can use the same "Affordable Growth" filter that found LPLA to find other possible candidates. Click here to view the filter and see more results.

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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 information presented is based on data provided and should not be the sole basis for any investment decision. Investors should conduct their own independent research and consult with a qualified financial advisor before making any investment.