For investors looking to balance the search for growth with fiscal care, the "Growth at a Reasonable Price" (GARP) method offers a sensible middle path. This method tries to find companies with strong and steady growth, but whose shares are not priced too high. It avoids the speculation common with high-growth stocks while steering clear of the pitfalls found in very cheap stocks. One practical way to use this method is with tools that sort stocks by important basic measures. A recent search for "Affordable Growth" stocks, which looks for good growth, firm profit and financial strength, and a fair price, has identified Neurocrine Biosciences Inc (NASDAQ:NBIX) as a stock for further review.
Growth: A Strong Engine
The central idea of any GARP method is, expectedly, growth. A company must show it can increase its revenue and earnings steadily. Neurocrine Biosciences shows this trait clearly, receiving a high Growth rating of 8 out of 10 in its fundamental analysis report. The company's recent results and future prospects give a clear view of its progress.
- Past Performance: In the last year, Neurocrine has posted notable growth numbers, with Revenue rising by 21.45% and Earnings Per Share (EPS) growing by 41.64%. This is not isolated; the company has kept an average yearly EPS growth of 29.09% in recent years.
- Future Expectations: The growth is projected to persist. Analyst forecasts indicate an average yearly EPS growth of 27.13% in the next few years, with a steady projected Revenue growth of 9.62% per year. This forward view is key for GARP investors, as it implies the company's expansion can be maintained.
Valuation: The "Reasonable Price" Test
Finding strong growth is only part of the task. The "reasonable price" element is what distinguishes GARP from pure growth investing. A stock must be priced well compared to its growth potential and similar companies. Neurocrine earns an 8 in Valuation, suggesting the market may not completely reflect its potential.
- Comparison is Important: While NBIX's standard Price/Earnings (P/E) ratio of 26.64 might seem high alone, context matters. Compared to the biotechnology industry, which often has high valuations due to growth hopes, Neurocrine seems relatively inexpensive. Its P/E ratio is below about 93% of its industry peers.
- Forward and Cash Flow Measures: The valuation view improves with more detailed measures. The company's Price/Forward Earnings ratio of 16.95 is notably lower than the industry average and the wider S&P 500. Also, measures like Enterprise Value/EBITDA and Price/Free Cash Flow show NBIX is priced lower than over 95% of its biotech competitors.
Supporting Basics: Health and Profit
A GARP method must confirm that growth is not reached through high risk or poor operations. This is where checks on financial health and profit become important. Neurocrine's firm scores in these areas (7 for both) give a stable base for its growth.
- Financial Health (Score: 7): The company has a very strong balance sheet. A notable point is its total absence of debt, which removes interest costs and repayment risk. This is paired with strong cash availability, with a Current Ratio of 3.39 showing enough resources to meet near-term needs. This financial strength provides steadiness and options to support future growth plans.
- Profit (Score: 7): Neurocrine is not only growing, it is growing with profit. It performs well in key efficiency ratios, with a Return on Invested Capital (ROIC) of 11.30% and a Profit Margin of 16.73%, both placed in the high end of its industry. High gross margins near 98% show the premium quality of its pharmaceutical products. Strong profit is necessary, as it confirms the business model and supports reinvestment.
Conclusion
Neurocrine Biosciences presents a profile that matches the goals of an Affordable Growth or GARP investment method. The company shows strong, double-digit growth in both earnings and revenue, with a positive outlook. Importantly, this growth is available at a price that seems fair, and even appealing, when compared to its high-growth biotech peers. This pairing is supported by a debt-free balance sheet that provides very good financial health and firm profit measures that verify the quality of its earnings. Together, these points indicate a company performing well on its growth plan without the high price risk often seen in the field.
For investors wanting to review other companies that meet similar standards of good growth, fair price, and sound basics, more results from the "Affordable Growth" search can be found here.
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 thorough research and consult with a qualified financial advisor before making any investment decisions. Past performance is not indicative of future results.
