April 17th, 2008 by tommy

Current fears and uncertainties in the investment market place have lowered the PE ratios on many growth stocks. This situation yields to a perfect situation to find opportunities for GARP money managers. What is GARP? Growth At a Reasonable Price. The GARP approach strives to find the benefits of growth investing while assigning an additional discipline for value. Further insights on the definition of GARP can be found on the investopedia website. Long term studies in academic finance have shown that value investing tends to outperform growth investing due to the tendency for human error to systematically overestimate the longevity of growth factors when valuing equities.

GARP investing attempts to mollify this negative aspect of growth investing by discovering growth stocks that still fit inside a threshold of reasonable price valuation. Let’s take a look at Google for example. There is no argument that Google is a growth stock. On the eve of Google publishing their Q1 2008 results, with the stock down 39% from its 52 week high, it becomes an easier and easier argument to make that at this price, the long term growth of Google is now attainable at a reasonable price. Chinese counterpart Baidu for example is trading at 57x future expected price to earnings, vs. Google’s 32.6 (Yahoo incidentally is at 48.4x, but given speculation on sweetened Microsoft takeover offer, the metric is not germane to the argument at hand).
GOOG is just one such example. But with tech being beat of up in the first three months of this year, there are many such buys available at the moment. Now just might be the perfect time to grab those growth stocks at a reasonable price.