Growth at a reasonable price, also known as GARP, is an investment strategy that seeks to combine the principles of both growth investing and value investing to select shares.
I think there are a number of great examples of GARP on the Australian share market right now. Three to consider are listed below:
Aristocrat Leisure Limited (ASX: ALL)
Despite a strong rally higher on Thursday, this gaming technology company’s shares are currently changing hands at around 21x estimated full year earnings. I think this makes its shares great value considering the company’s strong long term growth potential from its market-leading pokie machine business and exposure to the fast-growing digital and social gaming markets. On Thursday Aristocrat Leisure released its half year results and revealed operating revenue of $2,150.3 million and normalised EBITA of $644.4 million. This was an increase of 29.8% and 16.8%, respectively, on the prior corresponding period. I expect more of the same in the second half and beyond.
REA Group Limited (ASX: REA)
Whilst this property listings company’s shares are not as cheap as the others, I believe 32x estimated FY 2020 earnings still represents great value for money for a company with such a strong business model, market-leading position, and positive long term growth prospects. Especially with many tipping the housing market to bounce back in 2020. This is likely to lead to an acceleration in the company’s earnings growth, which has actually remained strong despite the housing market downturn.
Webjet Limited (ASX: WEB)
This online travel agent’s shares are currently trading at 24x estimated full year earnings. I think this is cheap given the strong growth the company has exhibited in recent years and so far in FY 2019. In the first half of the year the company delivered a 33% increase in revenue to $175.3 million and a 59% lift in net profit after tax to $31.8 million. This was driven largely by the impressive performance of its WebBeds (B2B) business which grew revenue by 72% and EBITDA by a massive 136%. The good news is that this business still has a very large market opportunity and I remain confident it will underpin strong earnings growth for many years to come.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended REA Group Limited and Webjet Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019