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AlphaScreens Update: Growth at a Reasonable Price (GARP)

This week's update of Algy Hall's growth-at-right-price (GARP) screen reveals some movers and shakers in the search for shares offering the magic combination of value and growth.
April 3, 2018

The first re-fresh of our IC Alpha growth at a reasonable price (GARP) screen, sees changes among the constituents of both the large-cap (FTSE All Share) and small-cap (FTSE All Small and Aim) screens. The price-to-earnings growth (PEG) ratio is central to both sets of screening criteria, with the All Share screen requiring a PEG below the median for the index and the smaller company screens each requiring a PEG in the bottom quartile of their respective universes.

Without meeting the PEG criteria, stocks can’t make the selections and there are also several other tests to assess which companies best offer the magic combination of value and growth. From the FTSE All Share universe, plastics manufacturer RPC Group no longer scores a perfect eight for tests passed. The shares are now rated on 10 times forward earnings, according to S&P Capital IQ data, placing them slightly below the second quintile of forward PEs, possibly thanks to adverse publicity about plastics sparking fears of regulatory pressures.

Recruiter Page Group does now meet the full complement of All Share screen measures. Investors still need to be wary that this company operates in a highly cyclical industry and in a sudden economic downturn recruitment would be at the forefront of downward earnings revisions. That said, in the good times it is undoubtedly a high margin and extremely cash generative business.

There is not much change in the FTSE All-small screen which, like the Aim screen, has seven tests. For the Aim screen, perhaps reflecting the speculative prospects (quite literally) of the junior mining sector, Atalalya Mining now has now joined the group of companies scoring 7/7, while Caledonia Mining now fails the Forward EPS growth test. Secure Income REIT also drops out of the perfect seven club, while SciSys, the bespoke software systems supplier, now meets all criteria.

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