For investors looking to balance the search for growth with fiscal care, the "Growth at a Reasonable Price" or "Affordable Growth" method offers a practical middle path. This method tries to find companies with strong and lasting growth paths, but whose shares are not priced too high. It tries to sidestep the high-risk nature of pure momentum investments and the slow progress sometimes seen in deep-value cases. A useful way to apply this is by looking for stocks with high growth marks, good profitability and financial strength scores, and a price that does not seem too high. One stock that comes from this kind of review is Pan American Silver Corp (NYSE:PAAS).
A Notable Example in Growth and Price
The central attraction of Pan American Silver within an affordable growth plan is found in its high combined scores for growth and price. According to ChartMill's fundamental review, PAAS receives a high growth mark of 8 out of 10 and a price mark of 7 out of 10. This pairing is significant because it indicates the company is increasing its business at a fast pace while its stock price may not yet completely show that possibility, a central idea of the GARP view.
- Growth Factors: The company's growth story is strong. Revenue jumped by 21.75% over the last year and has increased at an average yearly rate of 15.85% over recent years. More notably, Earnings Per Share (EPS) grew by 320% in the last year. Looking forward, experts think this pace will keep going, with EPS projected to increase by over 22% each year. This expected future growth is a vital part for affordable growth investors, as it gives a foundation for future share price gains.
- Price Setting: While a P/E ratio of 31.92 might appear high on its own, the full picture is key. This price is much lower than the wider metals and mining industry average. More revealing are forward-looking measures: the Price/Forward Earnings ratio of 16.21 is lower than nearly 68% of industry competitors and sits much below the S&P 500 average. Also, ratios like Enterprise Value/EBITDA and Price/Free Cash Flow also show PAAS is trading at a lower level compared to its sector. The low PEG ratio, which changes the P/E for growth, supports the case that the stock's current price may be fair given its anticipated earnings increase.
Supporting Basics: Strength and Earnings
An affordable growth plan must consider more than just growth and price. A company requires the financial strength to maintain its expansion and the operational skill to turn revenue into profit. Pan American Silver's marks in these areas, while not outstanding, offer a steady base.
- Financial Strength (Mark: 6/10): The company shows a good balance sheet. Its Altman-Z score points to low near-term bankruptcy danger, and a very strong Debt-to-Free Cash Flow ratio of 1.15 suggests it could clear all its debt in just over a year from its operational cash flow. The Debt/Equity ratio is a sound 0.12. These elements lead to a "acceptable" strength mark, meaning the company has the financial steadiness to pay for its growth plans and handle industry lows without too much risk.
- Earnings (Mark: 6/10): PAAS shows capable operational results. Its profit margin of 19.48% does better than a large majority of its industry competitors, and its return on equity and invested capital are also better than average. While earnings have seen some changes in the past, the current margins are good and the operating margin has been getting better. This level of earnings is necessary for the affordable growth model, as it verifies that growth is being reached effectively and is becoming real profit.
Why These Measures Are Important
The complete picture given by these four marks, Growth, Price, Strength, and Earnings, is exactly what makes the affordable growth filter work. A high-growth company with poor strength could be a debt-heavy speculative chance. A low-priced company with no growth might be a "value trap." By needing acceptable marks across all areas, the filter tries to pick companies like PAAS that are not only growing and fairly priced but are doing so from a place of financial and operational soundness. This full check helps lower risk while placing for possible gain. A full look at these fundamental marks for PAAS can be seen in the full ChartMill Fundamental Analysis report.
Summary
Pan American Silver Corp shows an example of the affordable growth investment idea. The company is in a strong growth period, especially in earnings, with a positive forecast. Importantly, this growth is not being ignored by the market to a great extent, as several price measures indicate the stock stays fairly priced within its sector. Backed by a financially sound balance sheet and better-than-average earnings, PAAS fits with the main ideas of searching for growth without paying too much and making sure that growth can last.
For investors wanting to find other companies that match this careful method, more results can be found by checking the Affordable Growth stock filter on ChartMill.
Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer to buy or sell any security. Investing involves risk, including the potential loss of principal. Readers should conduct their own research and consult with a qualified financial advisor before making any investment decisions.
