McKesson Corp (NYSE:MCK): A GARP Stock with Strong Growth at a Reasonable Price

For investors looking to balance the search for growth with fiscal care, the "Growth at a Reasonable Price" (GARP) method provides a practical middle path. This method tries to find companies with good and steady earnings growth, but whose shares are not priced too high. It avoids the speculation common with fast-rising growth stocks while steering clear of value traps, companies that are inexpensive for a cause. Filtering for stocks with good growth measures, reliable profitability, firm financial condition, and a fair price can help find these chances. One company that recently appeared through an "Affordable Growth" filter is the healthcare distribution leader, McKesson Corp (NYSE:MCK).

A Central Part of the Healthcare Supply Chain

McKesson Corp works at the vital center of the global healthcare system. Its main U.S. Pharmaceutical segment is a large distributor of branded, generic, and specialty drugs to pharmacies, hospitals, and clinics. Besides distribution, the company's Prescription Technology Solutions segment works on medication access and cost, and its Medical-Surgical Solutions unit provides products to providers like doctor offices and home health agencies. With a market size showing its scale and key function, McKesson's business model depends on volume, logistics skill, and offering useful services across the healthcare network.

Checking Growth: A Main Requirement

The main filter in an affordable growth screen is a high growth score, and McKesson's basics show this well. The company is not only growing; it is speeding up.

• Notable Historical Growth: Over the last year, McKesson's Earnings Per Share (EPS) rose by 25.63%, while revenue went up by 17.23%. The longer-term view stays firm, with a 5-year yearly EPS growth rate of 17.17% and revenue growth of 9.22%.
• Steady Future View: Analysts think this pace will keep going, with expected yearly EPS growth of 13.83% and revenue growth of 8.52% in the next years. This steadiness between past results and future estimates implies the growth is based on a lasting business base, not temporary events.

For a GARP method, this regular double-digit earnings growth is key. It shows a company that is effectively widening its operations and earnings ability, which is the basic driver for possible long-term stock gains.

Valuation: Judging the "Reasonable Price"

A stock with excellent growth can still be a bad investment if the cost is too steep. McKesson's valuation shows a varied but finally fair view, particularly within its setting.

• Varied Absolute Measures: McKesson's Price-to-Earnings (P/E) ratio of 22.79 and Forward P/E of 18.67 might seem high initially. However, the important study is in comparison.
• Comparative Value: Compared to similar companies in the Health Care Providers & Services industry, McKesson looks fairly low-cost. Its P/E ratio is less than nearly 65% of industry rivals, and its Forward P/E is less than over 62%. When judged against the wider S&P 500, McKesson's Forward P/E of 18.67 is under the index average of about 24.
• Growth Adjustment: The PEG Ratio, which changes the P/E for growth, shows McKesson is priced fairly. This important measure backs the central GARP idea: investors are not paying too much for the company's good growth path.

This comparative valuation strength is why McKesson passes the "reasonable price" filter. The screen finds stocks where the market may not completely recognize the growth story or where the growth supports the current multiple.

Profitability and Financial Condition: The Supporting Base

While growth and valuation are the main features, profitability and financial condition are the important platform on which they operate. McKesson gets a neutral but acceptable 6 out of 10 for profitability and a 5 for financial condition in the screen's review.

Profitability strong points are significant:

• The company produces a very good Return on Invested Capital (ROIC) of 26.27%, doing much better than over 97% of its industry peers. This shows very efficient use of capital to make profits.
• Its Profit Margin, while narrow at 1.04%, common for a high-volume distribution business, has been getting better in recent years.

Financial condition presents a detailed profile:

• On the good side, McKesson has a very strong Altman-Z score (5.73) and a very good Debt-to-Free-Cash-Flow ratio of 1.29, indicating high solvency and low bankruptcy risk.
• The main area for attention is liquidity. The company's Current and Quick Ratios are below 1, which is normal in distribution businesses with efficient cash conversion cycles but needs watching.

For the affordable growth method, these "acceptable" scores in condition and profitability are important filters. They help avoid companies that are growing unsustainably through too much debt or that lack the operational skill to turn revenue into lasting earnings.

Conclusion

McKesson Corp presents an example of the affordable growth idea. The company shows the necessary element of strong, steady earnings growth, both in history and in its forecast. This growth is available at a valuation that, while not very low-cost, is fair compared to both its industry and the wider market. Also, its very good ROIC and firm solvency measures give a base support that its growth is built on efficient operations rather than financial tactics. While investors should note its working capital structure, the overall basic view fits the aim of finding growing companies at practical prices.

A full basic analysis report for McKesson is ready for more study here.

Find More Possible Choices The "Affordable Growth" screen that found McKesson is made to filter for companies with a growth score above 7, a valuation score above 5, and acceptable scores in profitability and condition. If you want to look at other stocks that currently fit this balanced set of rules, you can see the live screen results here.

Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer to buy or sell any securities. The analysis is based on data and ratings provided by ChartMill.com. Investors should conduct their own due diligence and consider their individual financial circumstances and risk tolerance before making any investment decisions.