NVIDIA CORP (NASDAQ:NVDA) Exemplifies the Search for Affordable Growth

The search for growth stocks at reasonable prices represents a cornerstone of disciplined investing, aiming to capture the upside potential of expanding companies without paying excessive premiums. This approach, often termed Growth At a Reasonable Price (GARP), balances the desire for capital appreciation with the prudence of sound valuation. One method to find such opportunities is by using a systematic screen for "Affordable Growth," which filters for companies showing strong growth characteristics, solid fundamental profitability and financial health, and a valuation that is not stretched. This multi-faceted analysis helps investors avoid companies that are growing quickly but are financially weak or priced for perfection.

NVIDIA CORP (NASDAQ:NVDA) serves as a prime example of a stock that meets these strict criteria. The company's main business in designing and manufacturing graphics processors and accelerated computing platforms has placed it at the front of several technological waves, including artificial intelligence and data center expansion. A detailed fundamental analysis report assigns NVIDIA a high overall rating, reflecting its strong financial standing.

Growth Trajectory

The company's growth metrics are a key driver of its appeal for the Affordable Growth strategy, as sustained expansion is a primary requirement. NVIDIA shows strong momentum in both its recent performance and future prospects.

• Past Performance: Over the past year, NVIDIA's Earnings Per Share (EPS) grew by an impressive 67.87%, while its Revenue expanded by 71.55%. The average annual EPS growth over recent years stands at a notable 83.26%.
• Future Expectations: Analyst estimates point to continued solid growth, with EPS expected to increase by 24.91% and Revenue by 24.27% on an average annual basis going forward. This combination of outstanding historical growth and a solid forecasted path justifies investor interest and is a central part of the GARP approach.

Valuation Context

While growth is essential, the Affordable Growth strategy requires that it must be available at a reasonable price. NVIDIA's valuation presents a detailed picture, which is why it qualifies for a screen that looks for stocks that are "not overvalued" rather than deep value.

• The stock's Price-to-Earnings (P/E) ratio of 50.29 is above the current S&P 500 average, placing it in a more expensive category.
• However, its Price-to-Forward Earnings ratio of 28.75 is more favorable, making it less expensive than a majority of its industry peers.
• Importantly, its low PEG ratio, which factors in its high growth rate, indicates a more acceptable valuation when that growth is taken into account. This metric is key for GARP investors, as it helps find companies whose premium P/E ratios are supported by better earnings expansion.

Profitability and Financial Health

A screen for Affordable Growth requires more than just growth and a tolerable valuation; it also demands strong operational execution and a stable balance sheet to reduce risk. NVIDIA performs well in these areas, providing a firm base for its growth story.

• Profitability: The company operates with high efficiency, shown by a Profit Margin of 52.41% and a Return on Invested Capital of 72.42%, which are among the best in its industry. These high margins provide significant earnings ability and a cushion against potential economic downturns.
• Financial Health: NVIDIA's balance sheet is strong, with a high Altman-Z score indicating no bankruptcy risk and a very low Debt-to-Free-Cash-Flow ratio of 0.12, meaning it can pay off all its debts quickly. A Current Ratio of 4.21 shows ample liquidity to meet short-term obligations.

For investors interested by the profile of NVIDIA and the method for finding such stocks, further research can be done. You can find more companies that fit this Affordable Growth profile by using this pre-configured screen.

Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation to buy or sell any security, or an endorsement of any investment strategy. All investments involve risk, including the possible loss of principal. Readers should conduct their own research and consult with a qualified financial advisor before making any investment decisions.