Many investors believe they have to choose between two paths: buying fast-growing companies or hunting for undervalued “cheap” stocks. However, legendary investor Peter Lynch, who delivered an astounding 29% average annual return at the Fidelity Magellan Fund, showed there’s a better way. His secret was a powerful strategy called GARP, which stands for Growth At a Reasonable Price.
GARP is a simple but effective idea: buy companies that are growing steadily, but only when their stock price is sensible. It’s about finding that sweet spot between a company’s potential and its price tag.
You can always pick stocks as per your strategy using Finology Ticker Screener. It is one of the best free screening tools available.
What Exactly is GARP Investing?
GARP investing is a hybrid approach that takes the best from both growth and value investing. It combines the excitement of finding businesses with strong growth prospects with the discipline of not overpaying for them.
To strike this balance, Peter Lynch used a key metric: the PEG Ratio.
The PEG ratio helps you see if a stock’s price is justified by its earnings growth. Here’s the simple breakdown:
- PEG less than 1: The stock may be undervalued.
- PEG around 1: The stock is likely reasonably priced.
- PEG greater than 1: The stock might be overvalued.
A GARP investor looks for companies where the growth story is strong, but the price hasn’t gotten ahead of itself. With a tool like the Finology Ticker, you can find the PEG ratio for any company without doing any math yourself.
How to Find GARP Stocks Using a Screener
Peter Lynch had a clear set of criteria for finding winning stocks. You can use these same rules to build your own GARP watchlist with a stock screener.
Here are the core filters to apply on a platform like Finology Ticker:
- PEG Ratio < 1: This ensures you are buying growth at a fair price.
- Return on Equity (ROE) > 15%: This signals that the company is efficiently using its capital to generate profits.
- Debt-to-Equity < 0.5: A low debt level points to a financially healthy business.
- Sales & Profit Growth (3-Year Average) > 10%: This confirms the company has a track record of consistent growth.
By setting up these filters, you can instantly get a list of companies that fit the GARP profile.
Paste this query in Finology Ticker Screener and get results in seconds.
PEG ratio < 1 AND ROE 3yr Avg > 15 AND Net sales 3yr CAGR > 15 AND Debt to Equity Y1 < 0.5 AND Net Profit 3yr CAGR > 15 AND MCAP > 400 AND Adj EPS Growth Y1 > 15 AND EPS TTM > 0
Why the GARP Strategy Works
The GARP approach helps you sidestep two common investment traps: chasing expensive, hyped-up stocks and getting stuck with “cheap” companies that have no future growth. GARP stocks are often the quiet performers that steadily build wealth over time.
You can often find great mid-cap companies that fit this description by exploring the growth and valuation tabs on Finology Ticker.
GARP Stocks in the Indian Market
Let’s look at a few Indian companies that align with the GARP framework, using data you could find on Finology Ticker.
- Zydus Lifesciences: This pharmaceutical company combines consistent growth with a reasonable valuation. Its strong research and global presence make it a solid GARP candidate.
- LIC of India: Despite being a large public sector unit, LIC has shown strong profitability and efficiency, making it look undervalued relative to its performance.
You could also explore other names, such as Ashok Leyland and Waaree Energies, on the Finology Ticker to see how they fit the GARP model.
Applying GARP: A Simple Checklist
- Use a stock screener to filter for GARP criteria (PEG < 1, ROE > 15%, low debt).
- Dive deeper into the shortlisted companies. Check their financial health and earnings quality.
- Ensure the company’s growth is sustainable and not a one-time event.
- Be patient. GARP is a long-term strategy that rewards those who hold on to good businesses.
Final Thoughts: The Power of Balanced Investing
Peter Lynch’s wisdom was that you don’t need to find revolutionary companies; you just need to find solid businesses and buy them at the right price. GARP is the perfect strategy for this. It’s about finding quality growth that hasn’t been fully appreciated by the market.
By using a tool like the Finology Tickerto screen for these opportunities, you can apply a professional-grade investment strategy with ease. The next time you analyse a stock, go beyond just asking if it’s cheap or growing fast. Ask if the growth is available at a reasonable price. That’s where you’ll find the true multibaggers.
Finology is a SEBI-registered investment advisor firm with registration number: INA000012218.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
