Growth at a reasonable price, or GARP investing, is a combination of both value and growth investing. The strategy looks for companies that are somewhatundervaluedand have solid sustainable growth potential.
A key ratio used when evaluating potential GARP investments is the PEG ratio. The PEG ratio is simply a companys P/Eratio, divided by the growth rate of its earnings for a specified time period, usually the next year.
The lower the PEG ratio, the more the stock may be undervalued given its earnings performance. A PEG ratio of less than one is considered to be growth at a reasonable price.
And as the FTSE 100 remains near its all-time high, there are still plenty of GARP shares out there. Here are five.
Internationallong-term savings and investmentcompanyOld Mutual(LSE: OML) is hardly what you would call a growth company. Nevertheless, the groups low forwardP/E of 10.1 for 2015, combined with expected earnings per share growth of 17% next year, means that the companys shares are trading at a PEG ratio of 0.6, indicating growth at a reasonable price.
Additionally, Old Mutual currently supports a dividend yield of 4.1%, the payout is covered nearly two-and-a-half times by EPS. City forecasts currently expect the payout to grow around 10% per annum for the next two years.
According to City forecasts, newly merged electronics retailer,Dixons Carphone(LSE: DC) is set to see its earnings jump22% higher next year. This growth is a combination of merger synergies and cost savings, as well as a sales boost from the release of the new iPhone.
Even though Dixons currently trades at a forward P/E of 17.5, with high double-digit earnings growth expected, the companys PEG ratio is a lowly 0.8. The shares are also set to support a dividend yield of 1.9% next year, rising to 2.2% the year after.
Sports Direct International (LSE: SPD) recently released an interim management statement and set of trading figures that missed City expectations, although management did state the full-year would be in line with forecasts.
The company blamed poor trading on Englands terrible World Cup performance, which management had no control over. Still, the general consensus is that Sports Direct will see its EPS rise 23% next year. As the company is trading at a forward P/E of 18.5, Sports Directs shares offer growth at reasonable price with a PEG ratio of 0.8.
However, the groups dividend yield is nothing to get excited about. Sports Direct currently supports a yield of 0.2%.
Genel Energy(LSE: GENL) is ramping up its oil production this year. Production hit 63,000 barrels of crude oil equivalent during the first half, up 50% year on year and this is set to translate into explosive earnings growth.
Specifically, City analysts are currently expecting Genels EPS to rise 14% this year, followed by growth of 65% during 2015. Based on current figures Genel is trading at a 2015 forward P/E of 11.3, combine this lowly P/E with expected earnings growth of 65% and Genel is trading at a PEG ratio of 0.2. Genel is expected to report EPS of 77p for 2015.
Thomas Cook(LSE: TCG) was facing bankruptcy several years ago, but the embattled holiday provider has staged an amazing recovery during the past few years. Indeed, the Citybelieve thatthe company will report its first pre-tax profit since 2010 this year, a pre-tax profit of 187m is expected. Whats more, current City forecasts estimate that Thomas Cooks pre-tax profit will jump a further 51% during 2015.
All in all, the City has EPS growth of 99% pencilled in for this year, followed by growth of 56% for next year. As Thomas Cook currently trades at a forward P/E of 13.2, earnings growth of 99% translates in to a PEG ratio of 0.1.
Actually, based on these numbersThomas Cookis the most attractive growth stock in this piece.
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