Growth at a Reasonable Price (GARP):
Strategy for Smart Sharemarket Investing

What Is GARP?

Growth at a Reasonable Price (GARP) is an investment approach that blends the best of both growth and value investing. It focuses on identifying companies with above-average earnings growth that are still trading at reasonable valuations. GARP investors aim to avoid overpaying for momentum-driven growth stocks or falling into value traps with limited upside.

Key Principles of GARP

  • Earnings Growth: GARP investors seek companies with consistent, sustainable earnings growth, typically above the market average.
  • Reasonable Valuation: Unlike pure growth investors, GARP practitioners avoid overvalued stocks by using valuation metrics like the Price-to-Earnings (P/E) and Price/Earnings-to-Growth (PEG) ratios.
  • PEG Ratio Focus: The PEG ratio is central to GARP. It adjusts the P/E ratio for growth. A PEG of 1.0 or lower suggests a stock is fairly or undervalued for its growth potential.
  • Balanced Mindset: GARP offers a middle ground—pursuing capital growth while maintaining discipline on price.

GARP on the ASX: A Practical Approach

The Australian Securities Exchange (ASX) provides fertile ground for GARP investing, thanks to its diverse sectors—ranging from high-growth tech and healthcare companies to mature dividend-paying financials and miners.

Sector Examples

  • Technology:
    Xero (XRO.ASX) and WiseTech Global (WTC.ASX) show strong earnings growth potential. GARP investors monitor valuation closely to avoid overpaying.
  • Healthcare:
    CSL (CSL.ASX) offers consistent growth with a long-term track record—classic GARP territory.
  • Resources:
    While cyclically exposed, companies like BHP (BHP.ASX) and Fortescue (FMG.ASX) may qualify as GARP stocks when commodity prices support strong future earnings and valuations are attractive.

Key Metrics GARP Investors Use on the ASX

1.   PEG Ratio

  • A PEG ≤ 1.0 is ideal
  • Example: A company with a 20% growth rate and a P/E of 20 has a PEG of 1.0—suggesting a fair valuation

 

2.   Return on Equity (ROE)

  • High ROE can indicate strong and efficient profit generation


3.   Earnings Growth

  • Look for growth that is predictable and sustainable, not just based on short-term tailwinds4.  Dividend Yield (Bonus, not core)
    • Some GARP investors also appreciate moderate dividend yields from ASX-listed companies (e.g., banks or consumer staples) as a secondary source of return.

GARP Strategy in Action

Examples of Potential GARP Stocks on the ASX:

  • Xero (ASX: XRO) – High growth, watch valuation
  • CSL (ASX: CSL) – Steady compounder with reliable earnings
  • REA Group (ASX: REA) – Digital real estate leader with consistent growth
  • Seek (ASX: SEK) – International growth with reasonable P/E levels

PEG Ratio: A GARP Investor’s Compass

  • PEG ≈ 1.0 → Reasonably valued for expected growth
  • PEG < 1.0 → Potential undervaluation, but assess risk
  • PEG > 1.0 → May be overpriced for its growth outlook
    Always consider:

    • Industry norms (tech PEGs are typically higher)
    • Quality of growth forecasts
    • Broader market conditions (bull or bear trends)

How to Use GARP as a Strategy

  1. Pick Quality Companies
    Focus on consistent earnings growth, strong business models, and solid management.
  2. Stay Valuation-Aware
    Don’t chase growth at any price. Use PEG and P/E ratios to assess fair value.
  3. Diversify Across Sectors
    Combine high-growth tech or healthcare names with more stable industries like finance or materials.
  4. Think Long Term
    GARP is most effective as a long-term strategy, favouring companies with enduring growth potential.
  • This is a video where you can find all the Fundamental data on the Trade for Good software including the PEG ratio

    Read More

The Bottom Line

GARP investing on the ASX allows investors to target high-quality growth stocks without overpaying. By focusing on companies with strong fundamentals and disciplined valuations, GARP helps navigate market cycles with a balanced, thoughtful approach.

🔍 Looking for the next CSL or REA? Think growth—but only at a reasonable price.

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