For investors looking for a mix of expansion possibility and careful spending, the Growth at a Reasonable Price (GARP) or "affordable growth" method presents a solid middle path. This method tries to find companies that show good and lasting growth while also being priced at levels that do not completely account for that future. It avoids both risky, very high-growth stocks with extreme prices and very cheap companies with no growth ahead. A useful way to apply this method is by using basic screening tools that grade stocks on important areas such as growth, price, earnings, and financial strength. One stock that recently appeared through an "Affordable Growth" screen, which looks for good growth, firm earnings and strength, and a fair price, is PTC INC (NASDAQ:PTC).
Growth Path: A Central Part of the Idea
The main attraction of an affordable growth stock is, expectedly, its growth story. PTC’s basic report shows a company in a strong growth period, receiving a Growth Rating of 7 out of 10. The company’s latest results are especially notable, with both sales and earnings per share (EPS) rising strongly over the past year.
- Sales Growth: The company reported a 23.62% rise in sales over the last year, with an average yearly growth rate of 13.44% over recent years.
- Earnings Per Share Growth: Even more notable is the EPS growth, which increased by 73.62% in the last year and has grown at an average yearly rate of 25.59%.
This good past performance is joined by positive, though more measured, expectations for the future. Experts predict average yearly EPS growth of 11.30% and sales growth of 8.40% going forward. While this shows a slowdown from the outstanding recent rate, it still points to a sound and better-than-average growth view, which is a main requirement for the GARP method. A company must show both a proven skill to grow and a believable way to keep doing so.
Price: Checking the "Affordable" Part
A stock cannot be seen as "affordable growth" if its cost already includes many years of future gains. This is where the price check becomes important. PTC’s Price Rating of 5 out of 10 indicates it is fairly costed compared to its future, especially when seen in context.
The company’s Price-to-Earnings (P/E) ratio of 17.59 and Forward P/E of 17.82 might seem high initially. However, the basic study gives key perspective:
- Compared to the wider S&P 500, which trades at a P/E of almost 27, PTC is valued at a lower cost.
- More significantly, within its own software industry, PTC’s price is appealing. It is less expensive than about 74% of its industry competitors based on its P/E ratio and less expensive than 78% based on its Enterprise Value to EBITDA ratio.
This relative cost is key for the method. It shows that the market may not be fully valuing PTC for its better growth and earnings numbers compared to the sector, possibly making a chance for investors.
Supporting Basics: Earnings and Financial Strength
For growth to be lasting and the price to be fair, a company must be managed well and financially steady. PTC does well here, which lowers risk and backs the affordable growth idea. The company has a high Earnings Rating of 9 out of 10.
- Good Margins: PTC works with very good margins, including a Gross Margin of 84.23%, an Operating Margin of 39.28%, and a Profit Margin of 28.61%. These numbers put it with the best in the software industry.
- Strong Returns: The company produces notable returns on its capital, with a Return on Invested Capital (ROIC) of 16.99% and a Return on Equity (ROE) of 21.30%, both doing much better than industry averages.
Financial Strength, with a rating of 7, is also sound. The company has a workable debt level, with a good Debt-to-Equity ratio of 0.31 and an Altman-Z score of 5.82, showing low short-term failure risk. While its current and quick ratios are somewhat low, the report states that its firm ability to pay debts and earnings reduce common cash flow worries. This financial steadiness makes sure the company can pay for its growth plans without too much risk.
Summary and Next Steps
PTC offers a solid example for the affordable growth investor. It combines clear, good growth in sales and earnings with a price that stays fair compared to both the market and its own strong industry. This mix is supported by high-level earnings and a firm financial base, suggesting the growth is of good quality and can continue.
For investors wanting to find other companies that match this careful method of looking for growth at a fair price, more study can be done. You can look for more stocks that meet similar conditions using this Affordable Growth stock screen.
A full look at PTC’s basic scores across growth, price, earnings, strength, and dividend can be seen in its complete Fundamental Analysis Report.
Disclaimer: This article is for information only and is not financial advice, a suggestion, or an offer or request to buy or sell any securities. The study is based on data and basic reports from ChartMill, and investors should do their own separate research and think about their personal money situation before making any investment choices.
