For investors looking to balance the search for high-growth companies with fundamental caution, the "Growth at a Reasonable Price" (GARP) or "Affordable Growth" strategy offers a practical middle path. This method seeks to find companies with strong and lasting growth, but whose stock prices do not yet show extreme optimism, thus avoiding the high valuations common with aggressive growth stocks. An important part of this strategy is a complete fundamental check, making sure growth is backed by sound financial health and earnings, not just speculation.
PTC Therapeutics Inc (NASDAQ:PTCT) is a biopharmaceutical company that works on finding and selling treatments for rare diseases, with a group of therapies for conditions like Duchenne muscular dystrophy and spinal muscular atrophy. Recently, this stock was found using an Affordable Growth screen, which looks for companies with a high growth rating (above 7), acceptable scores for earnings and financial health, and a valuation that is not too high (rating above 5).
Strong Growth Path
The main attraction of PTCT for a GARP strategy is its solid growth measures, which gave it a ChartMill Growth Rating of 7 out of 10. The company has shown fast expansion in the last year, a key time for judging momentum.
- Revenue Increase: The company's revenue rose by a notable 97.54% over the past year, with a steady compounded annual growth rate of 21.32% in recent years.
- Earnings Growth: More importantly, earnings per share (EPS) grew by 277.07% in the past year, showing that revenue growth is strongly affecting net income.
- Future Outlook: Analysts expect this trend to persist, with estimated average yearly EPS growth of 23.80% and revenue growth of 17.29% in the next few years. This forward view is important for a growth investment case, indicating the recent results are likely to continue.
A Moderate Valuation
A stock with such growth could often have a high price. However, PTCT's valuation measures seem moderate, receiving a ChartMill Valuation Rating of 6. This mix is exactly what the Affordable Growth screen aims to find.
- Favorable Multiples: The stock has a Price-to-Earnings (P/E) ratio of 10.29, which is much lower than the biotechnology industry average and also below the current S&P 500 average. This implies the market may not have completely accounted for the company's growth.
- Cash Flow and EBITDA: The valuation picture is supported by cash flow and enterprise value. PTCT is valued lower than nearly all its industry peers based on its Price-to-Free Cash Flow ratio and lower than 98.66% based on its Enterprise Value to EBITDA ratio.
- Growth Adjustment: The PEG ratio, which modifies the P/E ratio for expected growth, also points to a relatively low valuation, supporting the view that investors are not paying too much for future growth.
Supporting Basics: Health and Earnings
While growth and value are the main criteria, the Affordable Growth strategy correctly notes that these need a stable base. PTCT's average scores in Financial Health (5) and Profitability (5) point to areas for attention, but also show positive aspects. Financial Health presents a varied situation. Positively, the company produces enough cash flow to manage its debt, with a good Debt-to-Free-Cash-Flow ratio of 3.38, better than 92% of the industry. Its current and quick ratios also show adequate short-term liquidity. However, investors should be aware of the rise in shares outstanding over time and a debt-to-assets ratio that has declined year-over-year, which slightly moderates the health view. Profitability displays a similar pattern of high margins but variable earnings history. The company has high margins, with a Gross Margin of 96.83%, an Operating Margin of 52.45%, and a Profit Margin of 42.25%, each putting it near the best in its industry. Its Return on Invested Capital (ROIC) of 41.48% is also very good. The note is that these strong measures come from a history of yearly losses and negative operating cash flow over the past five years, indicating a company that has more recently moved into profitability.
Conclusion
PTC Therapeutics Inc serves as an example of the Affordable Growth screening idea. The company shows the type of strong, accelerating growth that growth investors want, especially in its rising revenue and earnings. Importantly, this growth comes at a valuation that seems moderate compared to both its industry and the wider market, as shown by its low P/E and favorable cash flow multiples. While its financial health and record of steady earnings reveal some past inconsistencies, the current measures in these areas are acceptable enough to back the growth narrative without causing significant concern. For an investor using a GARP strategy, PTCT represents a possibility where the current price may not completely account for the growth anticipated later.
This analysis used the fundamental report for PTCT, which gives a full detail of all scored measures. You can see the complete report here.
If you want to find other companies that match this mix of growth, value, and fundamental soundness, you can use the same Affordable Growth screen. View more results from this Affordable Growth screen here.
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 plan. Investors should do their own research and think about their personal financial situation and risk tolerance before making any investment choices.
