Investors looking to balance the search for growth with a degree of caution often use strategies like Growth at a Reasonable Price (GARP). This method tries to find companies that are increasing their earnings and revenue at a good rate, but whose shares are not valued at extreme levels that allow no room for mistake. One useful way to apply this strategy is through systematic screening, which can identify candidates like Nextracker Inc - Class A (NASDAQ:NXT) for further review. As a top provider of solar tracker and software solutions, Nextracker operates directly in the high-growth renewable energy sector, making its fundamental profile especially interesting for this investment style.
Growth at the Core
The base of any affordable growth candidate is a shown and anticipated capacity to grow. Nextracker’s fundamental report displays a strong growth story. The company has posted good historical results, with Revenue increasing over 20% in the past year and Earnings Per Share (EPS) rising by a notable 22.25%. More significantly, this is not a single event; the multi-year patterns are positive, with average yearly EPS growth approaching 33%. Looking forward, analysts forecast continued good expansion, with estimated yearly revenue growth of 13.5% and EPS growth of about 9.4%. While this projected growth marks a slowdown from the very high past rates, a point mentioned in the report, it stays a sound and above-average speed, particularly for a company of its size in a capital-heavy industry. This steady growth path is exactly what GARP investors seek: proof of a business that is effectively getting larger.
Valuation in Context
A stock cannot be seen as "affordable growth" if its price already accounts for many years of future achievement. Nextracker’s valuation offers a detailed view that tends toward being sensible, particularly within its competitive field. The company’s Price-to-Earnings (P/E) ratio of 19.6 and Forward P/E of 19.1 are the main numbers. On a standalone basis, these multiples indicate a higher valuation. However, the important setting is in the comparison:
- Vs. Industry: NXT’s P/E ratio is lower than nearly 87% of similar companies in the Electrical Equipment industry, where the average P/E is above 35.
- Vs. Market: The stock also trades below the current S&P 500 average P/E of 26.3 and a more notable discount to the S&P 500’s forward P/E.
- Other Metrics: This relative value is seen in other measures. Its Enterprise Value-to-EBITDA ratio is more favorable than almost 79% of the industry, and its Price-to-Free-Cash-Flow ratio is lower than over 84% of competitors.
The report does note a high PEG ratio, suggesting the market may not be fully accounting for the anticipated slowing in growth. Still, when weighed against its outstanding profitability, the valuation seems more acceptable, making it a candidate that matches the "reasonable price" part of the GARP strategy.
Supporting Fundamentals: Profitability and Health
For growth to be lasting and the valuation to be safe, a company must be profitable and financially stable. This is where Nextracker’s profile gets especially interesting. Its Profitability score is a high 9 out of 10. The company has excellent returns on capital, with a Return on Invested Capital (ROIC) of 23.7% that beats 98% of its industry. Its operating margin of 22.2% is similarly high. These are not margins common for a new, loss-making growth company; they show a developed, well-operated business with notable pricing ability and size benefits within its specialty.
Additionally, its Financial Health score of 8 out of 10 gives a solid base. A key trait is the company’s clean balance sheet with no outstanding debt, removing interest cost and bankruptcy danger. This is supported by a strong Altman-Z score and good liquidity ratios, confirming it has the financial room to manage economic changes and put money into future growth without needing outside funding. For an affordable growth strategy, this mix of high profitability and sound health lowers the fundamental risk linked to the investment, supporting the idea that the growth is of high quality.
Conclusion
Nextracker offers an example of the kind of profile sought by affordable growth screens. It pairs solid, proven growth in a structurally growing industry with a valuation that is sensible compared to both its peers and the wider market. Importantly, this growth is supported by high profitability numbers and a very strong balance sheet with no debt, dealing with main risks that can harm growth stories. While investors should always think about sector-specific risks and the variability of solar project development, the fundamental view shown by the data fits well with a strategy looking for growth without paying too much.
You can review the complete fundamental analysis for Nextracker Inc - Class A (NASDAQ:NXT) here.
For investors interested in finding other companies that fit similar standards of good growth, firm profitability, financial health, and sensible valuation, more results can be found by exploring this Affordable Growth stock 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. Investors should conduct their own research and consult with a qualified financial advisor before making any investment decisions.
