Growth At A Reasonable Price

GARP is an investment strategy that attempts to invest in growth stocks that are fairly valued.

In the long run, a stock is worth how much future earnings it would generate. Therefore, in the long run, the price of a stock would generally move in tandem with its earnings. So in most circumstances, a stock whose earnings are growing rapidly would see very high valuations, such as Price-earning ratios of 50 or even 100. In raging bull markets, the P/E ratio could reach even more ridiculous heights.

Growth at a reasonable price seeks to invest in growth stocks to benefit from their long term growth in earnings but also to buy them at a price that is “reasonable”. The measures for what is reasonable and what is not may be discretionary but indicators like the PEG ratio are commonly used.

It could be argued that Warren Buffett is a GARP investor as he attempts to buy stocks that have shown stable long term growth at discounts to intrinsic value calculated by a discount cash flow model.

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