For Immediate Release
Chicago, IL – April 21, 2021 – Stocks in this week’s article are GIII Apparel Group, Ltd. (
GIII Quick Quote GIII - Free Report) , Rocket Companies, Inc. ( RKT Quick Quote RKT - Free Report) , Boise Cascade Company ( BCC Quick Quote BCC - Free Report) , Select Medical Holdings Corporation ( SEM Quick Quote SEM - Free Report) and Camping World Holdings, Inc. ( CWH Quick Quote CWH - Free Report) . Lucrative GARP Stocks Based on Discounted PEG
With smart investment becoming the buzzword in today's investment world, millennials are more inclined toward hybrid investment patterns rather than traditional pure play theories like value or growth.
The logic behind this is the effectiveness of a mixed investment strategy as value or growth investing approaches come with their own share of pitfalls. A pure play value investor misses the chance of betting on stocks that have bright long-term prospects. The same way, growth investors often end up investing in expensive stocks. In other words, to make a long-term investment more effective, the principles of both value and growth strategies need to be combined.
The quest for a mixed investment strategy led to the introduction of the GARP (growth at a reasonable price) approach. What GARPers look for is whether the stocks are somewhat undervalued and have solid sustainable growth potential (
One of the fundamental metrics for finding GARP is the price/earnings growth ratio (PEG). Although it is categorized under value investing, this strategy follows the principles of both growth and value investing.
The PEG ratio is defined as: (Price/ Earnings)/Earnings Growth Rate
It relates a stock's P/E ratio with future earnings growth rate.
While P/E alone only gives the idea of stocks, which are trading at a discount, PEG while adding the GROWTH element to it, helps to find those stocks that have solid future potential.
A lower PEG ratio, preferably less than 1, is always better for GARP investors.
Say for example, if a stock's P/E ratio is 10 and the expected long-term growth rate is 15%, the company's PEG will come down to 0.66, a ratio which indicates both undervaluation and future growth potential.
Unfortunately, this ratio is often neglected due to investors' limitation to calculate the future earnings growth rate of a stock.
There are some drawbacks to using the PEG ratio though. It does not consider the very common situation of changing growth rates such as the forecast of the first three years at very high growth rate followed by a sustainable but lower growth rate in the long term.
Hence, PEG-based investing can turn out to be even more rewarding if some other relevant parameters are also taken into consideration.
For the rest of this Screen of the Week article please visit Zacks.com at: https://www.zacks.com/stock/news/1425723/7-lucrative-garp-stocks-based-on-discounted-peg Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. About Screen of the Week
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