Growth At A Reasonable Price - GARP
Categories: Investing, Company Valuation
See: Price-to-Earnings-to-Growth Ratio. See: Price-to-Earnings. See: Value Investing. See: Hot Issue.
You want to buy the stock of a company growing annual revenues at 20 percent and earnings at 25 percent. It sells ketchup with now-nationally-legal marijuana mellower. Unfortunately, a whole bunch of Wall Streety investors who are channelling their parents' inner hippies view this company as if it's the leader of some cult. So they'll pay anything to own the stock, in part for the free concentrate samples.
The stock trades now at 80 times earnings. Waaaaaay expensive for the actual growth the company is demonstrating. You, being rational and from Mendocino, CA where the allure is really no big deal, would pay a reasonable price of 30 times earnings, maybe 25 times even.
Those would-be prices paid for growth at a reasonable price. That 80 times earnings thing is not GARP...at least not in the world according to ketchup.