What Is GAARP?

GAARP (Growth At A Reasonable Price) is a strategy where investors look for both growth and reasonable valuation. Peter Lynch liked fast-growing companies that weren’t overpriced; he used the PEG ratio to pick stocks that were both cheap and had growth potential.
Warren Buffett, on the other hand, preferred high-quality, solid companies but said he wouldn’t buy if they were too expensive.
Their common ground: GAARP. It’s not just about cheapness or just about growth it’s the balance of both.
Growth: The company’s sales, earnings, and cash flow are expected to increase rapidly in the coming years.
Reasonable Price: But the investor doesn’t pay an extremely high, inflated price for this growth. The price must be fair.
For example:

Pure Growth Stock: Growing very fast, but priced so high that the investor takes on big risk.
Pure Value Stock: Cheap price, but the company isn’t growing, and the future looks weak.

GAARP: A company that is growing and not overly expensive.

The simple measure used is the PEG Ratio:

PEG < 1 Cheap relative to growth (attractive)

PEG = 1 Fair price

PEG > 2 Could be too expensive

In short, GAARP = Growth is there, but I’m buying at a reasonable price.

The real money is made in SMidcaps that are GAARP or GAARP candidates. They grow fast, and their stock price grows fast too!