For investors looking to balance the search for growth with a degree of caution, the Growth at a Reasonable Price (GARP) or "affordable growth" method offers a sensible middle path. This method tries to find companies showing solid and lasting growth paths, but whose shares are not valued at extreme highs. The aim is to steer clear of the speculative excitement that can surround popular growth stocks while still taking part in their rise. A useful way to apply this is by looking for stocks with good fundamental scores in growth, profitability, and financial condition, along with a price that does not seem too high. One stock that recently appeared from this kind of search is Sezzle Inc (NASDAQ:SEZL), a digital payment platform focused on point-of-sale financing.
Growth Path: A Central Feature
The main attraction of an affordable growth stock is, expectedly, growth. Sezzle’s fundamental report points to this as a strong point, giving it a Growth Rating of 8 out of 10. The company’s recent results and future prospects form a good base for this score.
- Strong Recent Growth: In the last year, Sezzle has reported a 66.1% rise in revenue, a notable speed that is much faster than many similar companies. This follows an already strong trend over several years, with revenue increasing at an average yearly rate above 50% recently.
- Good Bottom-Line Improvement: Beyond just revenue growth, this rise is becoming profits. Earnings Per Share (EPS) increased by 27.2% in the last year.
- Continued Future Predictions: Analyst forecasts propose this progress is likely to persist, though at a more measured yet still good speed. Estimates point to average yearly EPS growth of about 28% and revenue growth above 26% in the next few years.
This mix of solid past results and a positive future growth outline is precisely what GARP investors seek to support an investment.
Valuation: Judging the "Reasonable Price"
A stock can show excellent growth but still be a bad investment if the cost is too great. The affordable growth method specifically looks for stocks that are "not overvalued." Sezzle’s Valuation Rating of 6 implies it is in a fair area, not very cheap nor overly costly compared to its potential.
Important valuation measures from the fundamental study show a detailed view:
- Price-to-Earnings (P/E): At 17.1, Sezzle’s P/E ratio is lower than the present S&P 500 average of 24.9. While it is close to its industry counterparts in Financial Services, the lower price compared to the wider market is a good sign for investors mindful of value.
- Future-Oriented Measures: The Price/Forward Earnings ratio of 12.9 is more appealing, sitting under both the S&P 500 average and the industry average. This shows the market is considering the company’s expected earnings growth.
- Growth Adjustment: Possibly most key, the low PEG ratio (which changes the P/E for growth) shows the stock’s price is quite low when its high growth speed is considered. The report states that Sezzle’s good profitability also helps support its current valuation level.
Supporting Basics: Profitability and Financial Condition
For growth to be lasting and the valuation to be safe, a company must be profitable and financially stable. Sezzle scores well here, with Profitability and Financial Health Ratings of 8 and 9, in turn. These supports are vital for the affordable growth method, as they lower the danger linked to investing in expanding companies.
- Notable Profitability Measures: Even as a growth-oriented fintech, Sezzle produces notable returns. Its Return on Invested Capital (ROIC) of 46.5% and Return on Equity (ROE) of 78.4% are some of the top in its field, showing very efficient use of capital. Good gross, operating, and profit margins further highlight a profitable operation.
- Sound Financial Condition: The company shows very good liquidity, with current and quick ratios near 4.0, indicating strong ability to cover short-term needs. Its Altman-Z score of 8.8 suggests a very small near-term bankruptcy danger. While it has some debt, its Debt-to-Free-Cash-Flow ratio of 0.68 is very good, meaning it could pay off all debt in under a year with its present cash flow.
Conclusion
Sezzle Inc presents a strong example for the affordable growth investment method. It has the fast revenue growth and good future earnings potential that growth investors want. Importantly, this growth is not combined with a very high valuation, instead, measures like its forward P/E and PEG ratios imply the market may not completely recognize its path. Also, the investment case is strengthened by exceptional profitability measures and a very strong balance sheet, which give a safety buffer and suggest the growth is on a lasting base.
For investors wanting to find other companies that match this outline of good growth, fair valuation, and solid basics, more results can be found using the Affordable Growth stock screen.
Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer or solicitation to buy or sell any securities. The analysis is based on data and ratings provided by ChartMill.com, and investors should conduct their own due diligence and consult with a qualified financial advisor before making any investment decisions. Past performance is not indicative of future results.