McKesson Corp (NYSE:MCK) Presents a Classic 'Growth at a Reasonable Price' Opportunity

For investors looking to balance the search for growth with some caution, the "Growth at a Reasonable Price" (GARP) method presents a good middle path. This method tries to find companies showing good and lasting increase, but whose stock prices are not too high. It avoids the limits of only following recent price trends or only looking for very cheap stocks, concentrating instead on good increase that the market may not yet fully recognize. One way to find these stocks is by using a structured filter, searching for stocks with high increase scores, good basic profit and financial strength, and a price that is still acceptable.

McKesson Corp (NYSE:MCK) recently appeared using this "Affordable Growth" filter. As a key part of the healthcare supply system, McKesson works in drug distribution, medical-surgical products, and prescription technology services. Its basic performance picture, shown in a detailed study report, displays a combination of good increase factors and a steady, though varied, base performance.

Good Increase Path

The main attraction of McKesson for a GARP method is its clear increase measures, which gave it an Increase Score of 7 out of 10. The company is not only getting larger but doing so at a faster rate.

• Notable Earnings and Revenue Increase: Over the last year, McKesson's Earnings Per Share (EPS) rose by 25.63%, while revenue went up by 17.23%. This is not a single event; the company has kept an average yearly EPS increase of 17.17% and revenue increase of 9.22% in recent years.
• Positive Future View: This speed is thought to keep going. Experts predict average yearly EPS increase of 13.83% and revenue increase of 8.52% in the next years, showing the company's expansion is viewed as lasting, not temporary.

For the affordable growth investor, this steady and predicted increase is very important. It points to a business that is building size and market position, a main point that can support a higher price multiple if the increase is seen as durable.

An Acceptable Price

While increase is necessary, paying a sensible price for it is the other part of the GARP idea. McKesson's Price Score of 5 indicates a neutral, or acceptably priced, position compared to its future.

• P/E with Comparison: The company's Price-to-Earnings (P/E) ratio of 23.63 is seen as high on its own. However, comparison is key. This ratio is lower than 62% of similar companies in the Health Care Providers & Services field and is nearly the same as the wider S&P 500 average.
• Future Measures Look Better: The price view gets better when looking forward. McKesson's Price/Forward Earnings ratio of 19.58 is considered lower than 60% of its field peers and is clearly below the S&P 500 average. Its Price/Free Cash Flow ratio also seems good compared to the field.
• Increase Adjustment: The PEG ratio, which changes the P/E for expected increase, shows McKesson is priced fairly. This fits the GARP thinking, suggesting investors are not paying too much for the company's future increase possibility.

Supporting Basics: Profit and Strength

An increase story built on weak finances is a dangerous one. The affordable growth filter needed acceptable scores in profit and financial strength, which McKesson provides with scores of 6 in both areas. These scores give important support for the increase story.

Profit is a strong point, especially regarding capital use. The company's Return on Invested Capital (ROIC) of 26.27% is very good, doing better than 97% of its field peers. This shows McKesson is very good at creating profits from the money it uses. While its profit and operating margins are average, the very good ROIC is a strong positive sign for investors focused on efficiency.

Financial Strength shows a detailed picture. On debt safety, McKesson is very strong. Its Altman-Z score indicates no failure risk, and its debt-to-free-cash-flow ratio of 1.29 is one of the best in the field, meaning it could pay all debt in just over a year from its cash flow. However, this strength is balanced by lower cash availability measures; its Current and Quick ratios are below 1, showing possible issues in meeting immediate bills without using operational cash flow—a typical feature in distribution-focused business models that control inventory and payments closely.

Summary

McKesson Corp shows the kind of company an affordable growth filter aims to find. It combines a good increase story—shown by strong past and predicted rise in earnings and revenue—with a price that is not high compared to its field or the wider market. The company's very good return on invested capital and strong debt safety give a firm base for this increase, even as its cash availability measures need watching.

For investors using a GARP method, the mix suggests McKesson's increase may be more lasting and acceptably priced than that of many fast-rising growth stocks. The filter that found McKesson is made to sort for exactly this balance, looking for increase that does not come with a very high price or weak basics.

Interested in finding more stocks that match this description? You can use the same "Affordable Growth" filter to view other possible choices here.

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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 analysis presented is based on data and scores provided by ChartMill.com, which are subject to change. Investors should conduct their own independent research and consider their individual financial circumstances and risk tolerance before making any investment decisions.