G.A.R.P is a style of investing known as Growth at a Reasonable Price. Why reasonable? Why not good or great price? Isn’t that the idea? We are going to break out the trusty screener, lay down some rules, and see if we can find some growth companies at a great price.
First up, we are going to limit our universe to stocks trading at more than $5 but no more than $20.
Many institutional investors have rules that prevent them from owning companies that trade for less than a five-spot. When big moneys step in, stock prices move and that’s why focusing on institutionally eligible stocks is a good idea. We’ll keep it under $20 to allow for most investors to buy lots of at least 100 shares.
There are a symmetrical 2222 companies trading between $5 and $20. That must be a good omen.
The growth part of equation is for companies that grew year-over-year (YoY) earnings-per-share (EPS) and sales by at least 25%. That quickly brings our number down to 142 candidates. The past is past, so we’ll layer on companies that are forecasted to grow the bottom and top lines by at least 25% in the
The list gets chopped down to 36 possibilities and could make for a good exchange-traded-fund.
Now, we’ll move away from growth to a great price. We’ll start with one of Warren Buffet’s favorite metrics, return-on-equity (ROE). We’ll insist on a ROE of at least 10%. Our list breaks into single digits at nine, most of which score a return-on-equity above 12.
Of the nine, all of them have a price-to-earnings ratio that is less than their most current quarterly earnings growth. So, we’ll move to price-to-sales (P/S), or criteria will be no more than 2.01 times revenue. Ahh, we have a quartet of G.A.G.P. stocks.
Oasis Midstream Partners LP (OMP)
Comstock Resources, Inc. (CRK)
Purple Innovation, Inc. (PRPL)
Goodrich Petroleum Corporation (GDP)
Of three energy stocks, OMP, CRK and GDP, Goodrich Petroleum has the best-looking chart. Goodrich is an independent oil and natural gas company that engages in the exploration, development, and production of oil and natural gas.
The energy company’s stock price recently put a potential bottom at $10 before rallying to $11.08. In the process, it created a technical buy signal known as a bullish MACD crossover. GDP shares have rallied both times this signal turned bullish in the last six-months. Its relative strength rating has turned northward, but still under the mid-point reading of 50.
If the stock can close above $11.50, then Goodrich could find its way to its 200-day moving average of $13ish. Longer-term, Wall Street has a one-year price target of $18.30 on GDP, a potential return of 61% from its August 8, 2019 closing price of $11.08.
Value is its name as the New York Stock Exchange listed company trades at just 5.46 times 2020’s consensus earnings-per-share (EPS) estimate of $2.03, up 54.96% form 2019’s outlook of $1.31. In the last 10-years, the minimum end-of-week price-to-earnings (P/E) ratio Wall Street paid was 15.78.
At just 10 times 2020 earnings, GDP is a $20 stock. To hit the street’s $18.30 requires a skimpy P/E of just 9.01.
In our opinion, projected earnings growth of 54% with a forward P/E of only 5.46 defines growth at a great price.