Vertiv Holdings Co-A (NYSE:VRT): A Prime Candidate for the GARP Investment Strategy

In the search for companies that combine solid expansion prospects with acceptable pricing, many investors use Growth at a Reasonable Price (GARP) strategies. This approach aims to find businesses that are increasing their earnings and revenue at an attractive rate, but whose shares are not priced at extreme valuations. The objective is to sidestep the high risk linked to speculative, high-growth stocks while still taking part in meaningful upside potential. One technique for finding such opportunities is through systematic screening, which can point out companies with good fundamental health and profitability to maintain their growth paths.

Vertiv Holdings Co-A (NYSE:VRT), a global provider of critical digital infrastructure technology, recently appeared from such an "Affordable Growth" screen. This screen looks for stocks with high growth ratings, good profitability and financial health scores, and a valuation that is not excessive. A closer examination of Vertiv's fundamental profile, as described in its detailed analysis report, shows why it matches this strategy.

Growth Trajectory

The central idea of a GARP strategy is finding companies with a clear and maintainable growth path. Vertiv is strong in this area, receiving a high Growth rating of 8 out of 10. The company is not only producing notable results but is also anticipated to keep this pace.

• Past Performance: Over the last year, Vertiv's Earnings Per Share (EPS) increased by 53.21%, while its Revenue grew by 26.31%. The five-year average annual EPS growth is an even more significant 55.36%.
• Future Expectations: Analysts predict this strength will persist, with estimated annual EPS growth of 25.17% and Revenue growth of 16.01% in the next years. It is important to note that the revenue growth rate is predicted to speed up compared to its historical average.

This combination of good historical performance and a positive future view is vital for affordable growth investing, as it offers assurance that the company's expansion is not a short-term event.

Valuation Assessment

While growth is important, the "reasonable price" part is what separates GARP from pure growth investing. Vertiv's Valuation rating of 5 indicates a neutral position, meaning the stock is not inexpensive but also not extremely overvalued relative to its opportunities.

• Price-to-Earnings (P/E): The company's trailing P/E ratio of 42.99 is higher than the S&P 500 average. However, it is actually less expensive than nearly 70% of similar companies in the Electrical Equipment industry.
• Forward-Looking Metrics: The more applicable Forward P/E ratio of 29.88 offers a somewhat more appealing view, also positioned below the industry average.
• Growth Compensation: The PEG ratio, which modifies the P/E for growth, points to a fair valuation. This is a central metric for GARP investors, as it implies the market price may be acceptable given the high anticipated earnings growth.

This valuation assessment supports the strategy's idea: investors are not paying a speculative premium but are instead getting a high-growth company at a price that matches its industry setting and future possibility.

Profitability and Financial Health

A solid growth narrative can be weakened by poor operations or a shaky balance sheet. For a strategy centered on maintainable growth, high scores in profitability and financial health are essential safety checks. Vertiv scores very well here, with ratings of 9 and 8, respectively.

• Profitability Strength: The company shows very good returns on capital, with a Return on Invested Capital (ROIC) of 17.60% that beats 96% of its industry competitors. Its operating margin of 17.41% is also in the top group of the industry, signaling efficient operations.
• Financial Resilience: Vertiv displays high solvency, with an Altman-Z score signaling low bankruptcy risk and a debt-to-free-cash-flow ratio indicating it could repay its debts in a fairly brief period. This financial steadiness lowers risk and gives the company the ability to invest in future growth projects.

These elements are important for the affordable growth strategy because they signal that the company's growth is supported by a base of efficient operations and a sound balance sheet, increasing the likelihood it will handle economic cycles well.

Investment Considerations

Vertiv’s role in the data center and digital infrastructure field matches long-term structural trends like cloud computing and AI, which offer a significant tailwind for its continued growth. The fundamental analysis indicates that the company has the operational quality and financial soundness to benefit from these opportunities.

For investors curious about investigating other companies that fit similar standards of solid growth, acceptable valuation, and good fundamentals, this Affordable Growth stock screen can act as a beginning point for more research.

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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 information presented should not be used as the sole basis for making any investment decision. Always conduct your own due diligence and consult with a qualified financial advisor before making any investment.