Investors looking for growth often face the challenge of balancing a company's future potential with its current price. The "Affordable Growth" or "Growth at a Reasonable Price" (GARP) method addresses this by finding companies that are not only increasing quickly but also have good basic operations and are not priced too high. This method looks for stocks with good growth paths, acceptable profitability, and solid financial statements, all while making sure the price does not assume unrealistic future performance. One stock that recently appeared from this type of filtering process is VICOR CORP (NASDAQ:VICR).
Growth Path and Momentum
The central idea of any growth method is growth. For a stock to be included in an affordable growth portfolio, it must show a convincing and frequently quickening increase in its business. Vicor's basic profile shows important strength here, which is needed to support future investment gains.
- Good Past and Expected Earnings: The company's Earnings Per Share (EPS) increased by a notable 75% over the last year. For the next few years, analysts estimate average yearly EPS growth of about 70%, pointing to a quickening from its steady past pattern.
- Continuous Revenue Increase: Revenue growth has been steady, with an 11.55% rise last year and an estimated quickening to almost 15% each year going forward. This pairing of good earnings momentum and acceptable revenue growth creates a solid base for future share price gains.
- Growth Score: Based on these factors, Vicor receives a Growth Score of 7 out of 10 from ChartMill's study, putting it above the level for "good growth" used in the filtering process.
Valuation Perspective
A sensible valuation is what distinguishes "affordable growth" from speculative overpaying. While a fast-growing company will seldom appear inexpensive on basic measures, the price must be supported by the growth speed and quality of the business. Vicor shows a detailed valuation situation that fits the GARP idea.
- High P/E, But Balanced by Growth: Initially, Vicor's Price-to-Earnings (P/E) ratio above 190 seems very high, both compared to the S&P 500 and on its own. Yet, this is greatly balanced by its very strong expected earnings growth. The Price/Earnings-to-Growth (PEG) ratio, which includes this growth, indicates the valuation is more sensible.
- Value Compared to Industry: Next to similar companies in the Electrical Equipment field, Vicor's valuation seems more appealing. Its forward P/E ratio of 83 is lower than about 63% of the field, and its Enterprise Value-to-EBITDA and Price-to-Free Cash Flow ratios are also in the lower half of the sector.
- Valuation Score: This varied but contextually understandable valuation leads to a ChartMill Valuation Score of 5. This satisfies the filter's need of not being overpriced (a score above 5), noting the high multiples while accepting the growth balance and relative field value.
Basic Financial Condition and Profitability
Lasting growth cannot happen without a firm operational and financial foundation. The affordable growth filter needs acceptable scores in condition and profitability to remove weak or inefficient companies. Vicor does very well in these supporting areas, which lowers the risk in its growth narrative.
- Excellent Financial Condition: Vicor has a very strong balance sheet, a key part of financial condition. The company has no debt, and its liquidity measures are excellent, with a Current Ratio of 7.55 and a Quick Ratio of 6.25, both numbers in the top 10% of its field. This very strong balance sheet offers important stability and room to manage market changes and fund future growth.
- Good Profitability Measures: The company is very profitable, with a notable Gross Margin of 51.78% and a Profit Margin of 20.74%, each better than over 96% of field rivals. Its Return on Equity (13.06%) and Return on Assets (11.58%) are also solid. These measures show a company that not only grows but does so effectively and profitably.
- Supporting Scores: These strengths are reflected in ChartMill's scores, with Vicor getting an 8 for Financial Condition and a 7 for Profitability. This confirms the company has the operational strength and financial durability to back its ambitious growth goals.
Summary and Next Steps
VICOR CORP offers a convincing example for the affordable growth investment method. It joins a strong and quickening growth story, especially in earnings, with a valuation that, while high on its own, is supported by that growth and seems sensible within its field context. Importantly, this growth is supported by a foundation of excellent financial condition and good profitability, decreasing the risk usually linked with fast-growth stocks. For investors, this mix of qualities indicates a company that is performing well now while preparing for important future increase, all without an excessively speculative price.
A full look at Vicor's basic analysis, including all underlying measures, is available in its full basic report on ChartMill.
For investors wanting to find other companies that meet this disciplined growth-at-a-sensible-price standard, you can review more outcomes using the Affordable Growth stock filter on ChartMill.
Disclaimer: This article is for information only and does not form financial advice, a suggestion, or an offer to buy or sell any securities. Investors should do their own study and think about their personal financial situation before making any investment choices.
