Growth at a Reasonable Price (GARP)

Goal/Rationale of the Screen

Growth at a reasonable price (or GARP) is a style that looks for both growth and value all at the same time. This style was made famous by the Fidelity legend Peter Lynch. The screen looks to find stocks with growth rates that are better than the market but with valuations that are below the market, giving you the best of both worlds.

Criteria

Strategy

The concept behind growth at a reasonable price (GARP), is to find stocks that are considered outperformers in terms of growth rates and future potential but that can also still be considered undervalued or bargains based on their valuation metrics. By combining these two concepts together, it also helps exclude extremes on either side, i.e., huge growth rates (but with excessive valuations) or deeply discounted valuations (but sub-par growth rates). This is accomplished by searching for stocks with growth rates (both actual and projected on both a quarterly and annual basis) that are above the median for the market while also exuding valuations (namely the P/E and the PEG ratio) that are below the median for the market.

Things to Watch Out For

To make sure that this screen doesn't produce too many or too few stocks, periodically check the parameters for the above growth and valuation items to make sure they are still above or below their respective median as desired.

Summary

This strategy can appeal to both growth investors and value investors alike as it doesn't compromise on either philosophy. In fact, combining the two strategies together serves to enhance the selection process than if any one of them were used individually.