For investors looking for growth without high cost, the "Growth at a Reasonable Price" (GARP) method presents a balanced path. This approach looks for companies with solid, lasting growth potential that are not priced too high. It finds a middle ground between pure growth investing, which can disregard price, and strict value investing, which might miss growth possibilities. By using a tool that selects for good growth marks along with acceptable profitability, financial soundness, and fair price measures, investors can find options that may present a good balance of risk and reward. One stock found by this reasonably priced growth selection is PTC Therapeutics Inc (NASDAQ:PTCT).
Concentration on Rare Diseases
PTC Therapeutics Inc is a biopharmaceutical company focused on finding, creating, and selling treatments for rare diseases. Its marketed products include medicines for conditions like Duchenne muscular dystrophy (DMD), AADC deficiency, and spinal muscular atrophy (SMA). The company's work in high-need, specialized treatment fields allows for some control over pricing and market protection, a key part of its growth story.
Notable Growth Path
The heart of the reasonably priced growth argument for PTC Therapeutics is in its notable growth measures, which gave it a ChartMill Growth Rating of 7 out of 10. The company's financial results display important speed, especially in its latest fiscal year.
- High Earnings Growth: The company's Earnings Per Share (EPS) increased by 277.07% over the previous year, a definite sign of better profit efficiency.
- Substantial Revenue Increase: Revenue rose by 97.54% in the last year, with a steady compound annual growth rate of 21.32% over recent years.
- Good Future Expectations: Analysts believe this speed will persist, with estimated average yearly EPS growth of 25.49% and revenue growth of 17.10% in the near future.
This mix of solid past performance and a positive future growth outline is exactly what growth-focused investors look for. For a GARP method, this growth must be achievable and not just theoretical, which seems backed by the company's marketed treatments and developing research projects.
Good Price Measures
While growth is necessary, paying a fair price is the other vital part of the GARP method. PTC Therapeutics receives a 6 on the ChartMill Valuation Rating, showing its shares are not highly priced even with the fast growth. Several important measures highlight this value case.
- Price-to-Earnings (P/E): At 10.12, PTCT's P/E ratio is viewed as very fair. It costs less than 97.55% of other companies in the biotechnology field and is notably under the S&P 500 average of about 26.29.
- Enterprise Value to EBITDA: This measure, which includes debt, also points to a low price compared to the industry.
- Price-to-Free Cash Flow: The ratio shows the market is pricing the company's ability to generate cash cautiously relative to others in the sector.
A key point to remember: the forward P/E ratio is negative because of expected profit drops next year, which adds a point of care and shows why a long-term view on the growth story is needed. However, the low PEG ratio, which modifies the P/E for growth, indicates the current price may still account for the expected growth path.
Evaluating Profitability and Financial Soundness
A reasonably priced growth stock must have more than just a low price and fast growth, it requires a steady base. The GARP selection demanded acceptable scores in profitability and financial soundness, areas where PTC Therapeutics has a middle but satisfactory standing with ratings of 5 in each.
Profitability presents a varied but hopeful image. The company has top-tier margins in its field, with a Gross Margin of 96.83%, an Operating Margin of 52.45%, and a Profit Margin of 42.25%. Its Return on Assets and Return on Invested Capital are also very high compared to similar companies. Yet, these excellent recent outcomes differ from a history of negative earnings and operating cash flow over the past five years, showing a recent and sharp shift to profitability that investors will want to see continue.
Financial Soundness, also rated a 5, shows sufficient but not outstanding strength. The company generates value, as its Return on Invested Capital is higher than its cost of capital. Liquidity is enough, with current and quick ratios above 2, showing no immediate payment problems, though these ratios are below many industry rivals. The balance sheet shows higher debt levels compared to last year and a history of share dilution, which are areas to watch. Its Altman-Z score is in a "middle area," pointing to some, though not high, risk of financial trouble.
Summary and Next Steps
PTC Therapeutics Inc makes a strong case for investors using a Growth at a Reasonable Price method. The company shows the needed characteristics: high recent growth in profits and sales, a good prediction for ongoing increase, and a share price that seems low compared to both its industry and its growth outlook. While its move to steady profitability is recent and its financial soundness is moderate, these elements are weighed against its high margins and fair pricing.
The stock shows the selection's aim of locating companies where growth and price meet. For investors wanting to review other stocks that fit similar standards of acceptable growth, fair price, and satisfactory basics, more outcomes are available through this Affordable Growth Stock Screener.
A full look at the separate measures behind these ratings is in the complete Fundamental Analysis Report for PTCT.
Disclaimer: This article is for information only and is not financial advice, a suggestion to buy or sell any security, or a support of any investment method. Investors should do their own complete research and think about their personal financial situation and risk comfort before making any investment choices.
