How to use the GARP Stocks scanner?
This scanner provides a list of Indian stocks based on a framework that focuses on identifying companies trading below their intrinsic value and having the potential for above-average growth. GARP is an acronym for Growth at a Reasonable Price, representing an investment style that falls between value and growth investing. GARP was popularized by the famous investor Peter Lynch and one of the most important tools in GARP investing comes from his book “One Up On Wall Street”. Lynch advocates for finding companies with solid growth prospects that are trading at reasonable valuations, typically measured using the PEG ratio (Price/Earnings to Growth). This approach aims to balance growth potential with risk control.
Let’s learn a little about this investing strategy.
According to the GARP investing strategy, there are some key areas to consider when searching for companies that are growing at a reasonable price, namely:
Market Capitalization
For Indian companies, we’ll take the minimum market capitalization of 1,000 crores.
Sales Growth
Sales growth indicates the percentage increase in sales over time, reflecting a company’s expansion and market strength. Consistent sales growth suggests potential profitability and market demand, influencing stock prices positively and indicating the financial health and prospects of a company. We will identify companies with annual sales exceeding INR 1,000 crores and achieving consistent growth of over 15% in the last 5 years.
EPS Growth
EPS growth refers to the percentage increase in a company’s earnings per share over time. It can be used as a key metric to assess a company’s profitability and future potential. Higher EPS growth generally indicates efficient management and potential for increased shareholder value, making it a crucial factor in investment decisions. To identify companies with potential for above-average growth, we’ll select stocks with consistently growing EPS of over 15% in the last 5 years.
Price/Earnings-to-Growth (PEG) ratio
The price/earnings-to-growth ratio (PEG ratio) is a stock’s price-to-earnings (P/E) ratio divided by the growth rate of its earnings over a specified period. The PEG ratio helps determine a stock’s value by considering the company’s expected earnings growth, offering a more comprehensive assessment than the standard P/E ratio. The PEG ratio helps bring companies from different industries or sectors together on a uniform measurement scale. In this scanner, we’ll find the companies that have a PEG ratio between 0 to 2.
Quarterly Net Profit
This refers to a company’s earnings after deducting all expenses and taxes for a three-month period. This metric helps you to gauge a company’s financial health and performance over short intervals. It helps assess profitability trends, compare against previous quarters, and make informed decisions about investing or holding stocks based on current earnings stability and growth potential. This scanner filters companies whose expected net profit is greater than the quarterly profit made 3 quarters ago.
In this scanner, we have made some modifications to the strategy, so that it can be seamlessly applied to Indian stocks.
Don’t forget
- This is a first-level filter aimed to give you a good starting point in your search for the companies that are growing at a reasonable price. You can further analyze these stocks to ascertain if they are good businesses and command a seat in your investing portfolio.
- Some companies are cyclical in nature and you have to analyze their historical data to track the company’s performance based on the nature of their business.
- We have modified some parameters of this scanner to assess Indian companies in the current market. Perform your own research and fundamental analysis on these companies before making any investment decisions.
Learn investing and valuation analysis with these courses
Company Valuation Analysis
by Kumar Saurabh
How to Invest for Long Term
by Arvind Kothari
Valuation for Investing
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Frequently Asked Questions
Can I invest in all the companies that are listed in this scanner?
No! This scanner is just to be used for idea generation. As mentioned in the ‘Don’t Forget’ section, this is just a first-level filter aimed to give you a starting point in your search for fundamentally strong companies that are reasonably valued. You can learn more about long term investing in Mr. Arvind Kothari’s How to Pick Stocks for Long Term course on Upsurge.club.
How can I learn more about investing in the right stocks?
Upsurge.club offers a range of courses on investing where you can learn everything from the basics to advanced strategies and idea generation methods. You can find them here.