For investors looking to balance the search for growth with a degree of caution, the "Growth at a Reasonable Price" (GARP) or "Affordable Growth" method presents a viable option. This method tries to find companies that are increasing their sales and profits at a good rate while also being priced at levels that are not extreme. By filtering for stocks with good growth scores, sound basic earnings and financial condition, and a price that is not too high, investors can search for chances where a company's future prospects may not be completely recognized by the market. One stock that recently appeared from this filter is Neurocrine Biosciences Inc (NASDAQ:NBIX).
A Base of Financial Condition and Earnings
Before examining growth and price, it is important to evaluate the basic soundness of a company. For an affordable growth method, adequate condition and earnings are essential; they offer the steadiness that maintains continued growth and lowers investment danger. Neurocrine Biosciences shows notable soundness in these areas, receiving high scores in its basic review.
The company's financial condition is strong, marked by a very secure balance sheet. A notable point is the total lack of debt, putting it in the highest group of its biotechnology industry for financial security. This gives great operational freedom and durability. Also, its Altman-Z score of 8.09 shows a very small close-term danger of financial trouble, and good liquidity ratios show it is fully able to cover its short-term needs.
Regarding earnings, Neurocrine does very well. The company is regularly profitable with positive cash flow, an important accomplishment in the frequently unsteady biotech industry. Its earnings levels are especially notable:
- Profit Margin: 15.95%, higher than 92% of industry companies.
- Operating Margin: 20.64%, higher than 95% of the industry.
- Return on Equity & Invested Capital: Both measures (14.25% and 11.10%, in order) are in the highest 6% of the biotechnology industry.
This pairing of a balance sheet with no debt and industry-leading earnings creates a firm base from which the company can finance its growth plans.
Strong Growth Path
The center of the affordable growth idea is, expectedly, growth. Neurocrine Biosciences displays a solid and well-developed growth narrative that reaches from its recent history into its expected future. The company's basic report points out outstanding speed.
Past Results:
- Earnings Per Share (EPS) has increased at an average yearly rate of 58.39% over recent years, with a 12.06% rise in the last year alone.
- Sales growth has been similarly solid, averaging 24.48% yearly, including a 19.61% jump in the most recent year.
Future Predictions:
- Experts forecast EPS growth to keep going at a solid 32.54% on average over the next years.
- Sales are predicted to increase at a 12.05% yearly rate.
While the future growth estimates show a slowing from the very high past rates—a typical event as companies get larger—they are still "very solid" and "quite good," in order, according to the basic review. This proven record of growth joined with a sound future view is precisely what growth-focused investors look for.
Price: The "Affordable" in Affordable Growth
A stock can have excellent growth and very sound basics, but if it is valued for years of ideal results, it does not pass the "affordable" check. The price review is where Neurocrine becomes especially notable for the GARP investor. Its price score of 7/10 suggests it is fairly valued, specifically within its high-growth industry.
A quick view of its Price-to-Earnings (P/E) ratio of 32.86 may appear high compared to the wider S&P 500. However, context inside its industry is key. The biotechnology industry often trades at a higher price due to its growth possibility. From this view, Neurocrine's valuation looks much more appealing:
- Its P/E ratio is lower than 93% of its biotechnology industry companies.
- Its Forward P/E ratio of 19.07 is lower than 94% of the industry and is also under the current S&P 500 average.
- Other price measures, like Enterprise Value/EBITDA and Price/Free Cash Flow, also show NBIX is valued lower relative to over 94% of its industry competitors.
Most significantly, the review states that the stock's low PEG ratio—which includes its earnings growth rate—"shows a fairly low valuation of the company." This is the sign of a GARP candidate: solid growth that is not completely shown in the current stock price.
Summary
Neurocrine Biosciences Inc offers a clear example for the affordable growth method. It effectively meets all the key points: outstanding historical and predicted growth, top-level earnings and margins, and a balance sheet with no debt that shows excellent financial condition. Importantly, when compared to its high-growth biotechnology industry companies, its price seems fair, even appealing, specifically when growth predictions are included through the PEG ratio. This pairing indicates the market may be pricing the company's steady performance and sound basics without overestimating its future, presenting a possible chance for investors searching for growth without extreme guesswork.
For investors wanting to review other companies that match this description, more outcomes from the "Affordable Growth" filter can be seen here.
A complete outline of the basic review for Neurocrine Biosciences is in its full basic report.
Disclaimer: This article is for information only and does not make up financial guidance, a suggestion to buy or sell any security, or a support of any investment method. Investors should do their own study and think about their personal financial situation and risk comfort before making any investment choices.
