For investors looking to balance the search for growth with some caution, the "Growth at a Reasonable Price" (GARP) method presents a practical middle path. This method looks for companies with good and lasting growth paths, but whose stock prices are not too high. It tries to sidestep the great risk of paying too much for extreme growth while still taking part in a company's progress. One method to find these opportunities is an "Affordable Growth" stock filter, which selects for businesses with high growth scores, good profit and financial condition, and a fair stock price. A recent notable result from this filter is power conversion specialist VICOR CORP (NASDAQ:VICR).
Growth Profile: Good Momentum with Speeding Up Expected
The central idea of any GARP method is, of course, growth. A company needs to show a clear capacity to grow its business and, preferably, have the reasons to keep doing so. Vicor's fundamental report shows a good growth profile that fits this need.
- Past Performance: The company has posted notable recent outcomes, with Earnings Per Share (EPS) rising 75% over the last year. Revenue growth has also been positive at 11.55% for that time.
- Future Expectations: The forecast is where Vicor's profile gets more interesting. Analyst projections indicate a notable speed-up, with EPS predicted to grow at an average yearly pace of 71.39% and revenue expected to rise by 14.84% each year in the near future.
- Growth Path: The report states that both EPS and revenue growth rates are speeding up when looking at past patterns next to future projections. This change from consistent growth to possibly fast increase is a main point that draws growth-focused investors.
For an affordable growth filter, this good and speeding up growth score is the main screen, making sure the company has the basic engine to create future value for shareholders.
Valuation Check: A Varied but Situational View
Valuation is the "reasonable price" part of GARP. The aim is to find companies where the growth potential is not already completely shown in a very high stock price. Vicor's valuation shows a detailed view that needs situation.
- Standard Measures: On the surface, standard metrics look high. The company's Price/Earnings (P/E) ratio of 129.12 and Forward P/E of 55.19 are elevated, both on their own and next to the wider S&P 500.
- Industry & Growth Situation: Yet, valuation is relative. Compared to similar companies in the Electrical Equipment field, Vicor's valuation seems more acceptable. Its P/E ratio is lower than almost 65% of industry rivals. More significantly, the report points out a low PEG ratio, which changes the P/E for the company's projected earnings growth rate. This implies the high P/E could be explained by the unusual growth expected.
- Other Measures: Other valuation checks are more positive. Vicor's Enterprise Value to EBITDA and Price to Free Cash Flow ratios are lower than most of its industry peers.
This varied valuation score is exactly what an "affordable growth" filter tries to find: a stock that is not low-priced in a standard way, but whose price could be fair when considered against its unusual growth outlook and industry place. The filter's valuation screen works to remove the most clearly overpriced stocks, letting companies like Vicor with high-growth allowances through.
Supporting Basics: Profit and Financial Condition
A simple growth narrative can be weak if not supported by a firm base. This is why affordable growth methods also screen for profit and financial condition, to make sure the company can pay for its growth and handle economic changes.
- Profit Strength: Vicor scores well here, with a very good profit margin of 20.74%, doing better than nearly 98% of its industry. Its return on assets and equity are also high. Good profit shows price strength, operational effectiveness, and the ability to turn revenue into earnings, all important for maintaining growth spending.
- Notable Financial Condition: Possibly Vicor's most striking trait is its very strong balance sheet. The company has no debt, an uncommon and strong quality that gives great financial room. This is supported by very good liquidity ratios, with a Current Ratio of 7.55 showing no short-term payment worries. An Altman-Z score of 38.47 shows very small bankruptcy risk. For a growth investor, this condition profile means the company can actively spend on R&D and capital growth without the weight of interest costs or refinancing risks.
These good scores in profit and condition provide the steadiness and quality base that make the growth story more believable and less risky, which is precisely why they are included as necessary screens in the filtering process.
Summary and Next Steps
VICOR CORP offers an interesting example for the affordable growth or GARP method. The company shows the needed three parts: speeding up future growth projections, a valuation that can be understood by that growth and industry status, and excellent basic strength in profit and a balance sheet with no debt. While its high P/E ratio requires notice, the core growth path and financial strength give a reason for its market price.
Investors curious about examining other companies that fit similar standards of acceptable growth, fair valuation, and sound basics can find more possible options by checking the Affordable Growth filter on ChartMill. A closer look at Vicor's specific basics is in its complete fundamental analysis report.
Disclaimer: This article is for information only and is not financial advice, a suggestion, or an offer to buy or sell any security. The study uses data and scores from ChartMill. Investors should do their own complete research and think about their personal money situation and risk comfort before making any investment choices.
