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 tries to find companies that are increasing their earnings and revenues at a good rate, but whose shares are not offered at very high prices. It steers clear of the speculative edges of pure momentum investing while seeking more active possibilities than deep-value investments. One method for finding such companies is an "Affordable Growth" stock filter, which looks for companies with good growth basics, firm profitability and financial condition, and a price that does not seem too high. A recent example from this filter is Neurocrine Biosciences Inc (NASDAQ:NBIX).
A Base of Good Growth
The central idea of any GARP method is, expectedly, growth. A company must show a confirmed capacity to get bigger, with a believable view for continued progress. Neurocrine Biosciences displays this clearly. The company's basic report shows a firm Growth Rating of 8 out of 10, indicating good points in both its recent past and expected future.
- Past Results: Over the last year, revenue increased by 19.61%, while the five-year yearly growth rate is a notable 24.48%. Earnings per share (EPS) have risen even more sharply, with a 58.39% yearly growth rate over the same multi-year span.
- Future Predictions: Experts expect this progress to continue, though at a somewhat slower speed. Forward guesses predict yearly EPS growth of about 35% and revenue growth of more than 12%. This forward-looking growth is a key part for the affordable growth idea, as it indicates the company's expansion story is not finished.
For the GARP investor, this mix of strong past results and a positive growth path is necessary. It points to a business that is effectively using its market chances, which should, in idea, lead to higher future earnings and cash flows.
Price: Sensible Within Setting
Growth by itself is not sufficient; it must be available at a fair price. This is where the price evaluation becomes very important. Neurocrine’s Price Rating of 7 indicates its stock price, while not very low, is sensible compared to its growth picture and industry group. The study shows a detailed view:
- Absolute vs. Group Measures: On a pure basis, a Price-to-Earnings (P/E) ratio of 36.86 may look high next to the wider S&P 500 average. However, the biotechnology industry usually sells at higher multiples because of its growth nature. In this setting, NBIX looks fairly low-priced, selling for less than over 91% of its industry group based on both its current and forward P/E ratios.
- Growth-Considered Price: Maybe more revealing is the Price/Earnings-to-Growth (PEG) ratio, which includes expected earnings growth. Neurocrine’s low PEG ratio shows the market may not be fully accounting for its high predicted growth rate, a common sign of a possible GARP chance.
- Cash Flow View: More support for the price case, the company’s Price-to-Free Cash Flow ratio is lower than 94% of the industry, suggesting the market is pricing its cash-producing ability in an appealing way.
This group price strength is exactly what an affordable growth filter aims to find: a company whose growth story is not yet completely shown in a high stock price.
Supported by Profitability and Financial Condition
A lasting growth story cannot be made on weak bases. The GARP method carefully includes tests for profitability and financial condition to avoid "value traps" or companies growing in an unstable way. Neurocrine scores well here, with Profitability and Condition Ratings of 8 and 7, in that order.
- Profitability Power: The company has very good margins, with a Gross Margin near 98% and an Operating Margin over 20%, both placed in the high group of its industry. Its returns on assets, equity, and invested capital are all good, showing effective use of money to create profits.
- Financial Strength: Importantly, Neurocrine has no debt on its balance sheet. This gives great financial room and lowers risk, especially significant for a company in the sometimes-unstable biotech field. Its Altman-Z score shows very low bankruptcy risk, and it regularly produces positive operating cash flow.
These points are important for the affordable growth idea. Good profitability confirms the quality of the company's growth, while a very strong balance sheet makes sure it has the endurance to follow its long-term plans without being stopped by financial trouble.
Summary and More Study
Neurocrine Biosciences offers a solid example for the Growth at a Reasonable Price method. It mixes a clear and predicted high-growth picture from its neuroscience-centered work with a price that stays sensible compared to its industry and growth outlook. This possibility is further made safer by excellent profitability measures and a very strong, debt-free balance sheet.
For investors wanting to look at other companies that meet similar standards of acceptable growth, decent basics, and sensible price, more findings can be seen by checking the Affordable Growth stock filter. A full look at Neurocrine's basic strengths and weak points is ready in its full basic analysis report.
Disclaimer: This article is for information only and does not make financial guidance, a suggestion, or a deal to buy or sell any security. Investing includes risk, including the possible loss of original money. You should do your own study and talk with a qualified financial consultant before making any investment choices.
