What exactly is the GARP (Growth at a Reasonable Price) strategy and how does it blend growth and value?

GARP (Growth at a Reasonable Price) is an investment strategy that seeks companies with above-average earnings growth potential trading at valuation multiples that aren't excessive. It bridges the traditional growth vs. value divide.

Core GARP Principle:

Pay a fair price for growth — don't overpay for hyper-growth stories, but don't settle for cheap stocks with no growth either.

Key GARP Metrics:

1. PEG Ratio (primary tool): PEG = P/E / Expected EPS Growth Rate

• PEG < 1.0: Potentially undervalued growth
• PEG = 1.0: Fairly priced growth
• PEG > 1.5: Overpriced growth

1. Earnings Growth Rate: Typically targets 10-25% annual EPS growth

• Below 10%: Too slow (this is value territory)
• Above 30%: Probably unsustainable (pure growth territory)

1. Reasonable P/E: Not the cheapest stocks, but not the most expensive

• Typical GARP range: 15-25x forward P/E

GARP Screening Example:

Ashford Tech and Eastwick Bio are GARP candidates — solid growth at reasonable multiples.

GARP vs. Pure Growth vs. Pure Value:

Limitations of GARP:

• PEG ratio assumes a linear relationship between growth and P/E, which may not hold
• Growth estimates are inherently uncertain — a PEG based on inflated estimates is misleading
• Does not account for quality of earnings or balance sheet risk

CFA Exam Application: Expect questions comparing GARP with other styles and asking you to screen stocks using PEG ratios. Know the limitations.

For more equity style analysis, explore our CFA courses.