Growth at a Reasonable Price (GARP)
An equity strategy targeting companies with above-average earnings growth at valuations that have not fully priced in that growth.
What is GARP?
Growth at a Reasonable Price (GARP) is an equity investment strategy that seeks companies with above-average earnings growth rates trading at valuations that have not yet fully priced in that growth. Popularized by legendary investor Peter Lynch during his tenure at Fidelity Magellan Fund, GARP investors typically screen for stocks with PEG ratios below 1.0—indicating that the price-to-earnings multiple is lower than the earnings growth rate. Unlike pure growth investing, GARP imposes a valuation discipline to avoid overpaying; unlike pure value investing, it targets companies with meaningful growth prospects rather than simply cheap or distressed stocks.
Example
A GARP screen applied to the S&P 500 might identify a company trading at a 15x P/E ratio with projected 20% EPS growth, producing a PEG ratio of 0.75. Peter Lynch argued that a PEG below 1.0 signals an attractively priced growth stock, while a PEG above 1.5–2.0 suggests growth is fully or overly priced in.
Source: Lynch, P. — One Up On Wall Street (Simon & Schuster, 1989)