Growth at a reasonable price (GARP) combines value and growth investing to identify stocks with strong growth and low price-to-earnings ratios. While not foolproof, it can lead to significant returns if investors evaluate options closely and project future movement.
Also known as GARP, growth at a reasonable price is a strategy that seeks to combine elements of value investing and growth investing into a viable approach. When successful, this strategy allows you to identify investment opportunities that fit somewhat narrow criteria, purchase those stocks, and increase the chances of earning a significant return on investment activity. The idea is to dispense with the more extreme aspects of both growth and value investing and use basic principles to generate the best return opportunities while keeping risk reasonably low.
With growth at a reasonable price, the idea is to identify companies that exhibit growth patterns that are somewhat steeper than general marker levels. This particular aspect of growth investing is rated at the current valuation of the securities issued by those same companies, a process that leads to a value investing process base on investor focus. Ideally, this decision to use a growth at a reasonable price approach results in the identification of stocks with a strong growth-oriented nature that also possess relatively low price-to-earnings ratios that investors find favourable.
Assuming the stocks possess the necessary traits to qualify for this growth at a reasonable pricing strategy and perform consistently with investor projections, the chances of significant return over time are very good. At the same time, this strategy can also be used effectively with investments intended to be held for a shorter period of time, even for a single calendar year. The trick is to determine how and at what rate growth will occur, when it will start to level off, and when the investor needs to sell the stock to maximize the return.
As with most types of investment strategies, growth at a reasonable price is not a foolproof approach. For the strategy to work, investors must evaluate the options closely. There is currently no established process for evaluating the viability of any investment opportunity, other than the broad concept of combining the basics of growth and value investing in a single approach. This means that investors must still take the time to use all available data to project the option’s future movement and determine whether the proposed rate of growth will lead to a desirable ending. If not, then the investor would do well to abandon safety and seek opportunities with other options found on the market.
Smart Asset.
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