The GARP investing style is a combination of growth and value investing. GARP, or growth at a reasonable price, followers look for companies that are at least somewhat undervalued while having a sustainable future of solid growth. GARP investors are really not value investors or growth investors either one, they are basically a hybrid.
GARP investors tend to shy away from stocks that have huge year over year growth patterns that are unlikely to be sustainable. GARP investors love finding a stock with a nice 15-20% growth.
When looking for good valuations in relation to their growth rate a GARP investor very frequently uses the PEG ratio. By using this ratio the investor is able to gauge how the company is valued in comparion to its growth rate. The most effective way to do this in GARP investing is to screen the stocks by industry or sector, since different industries have far different valuations. GARP investing is about finding relative values.
Critics of the GARP style say that the style has no clear cut standards for distinguishing companies and that it is a wishy-washy method.
Peter Lynch is the most famous GARP investor of all time. Lynch averaged 29% a year for a 13 year period while managing the Fidelity Magellan Fund.
The GARP investing style is a great way to invest in my opinion. It certainly isn't the most clear cut of the investment styles, but investing in itself isn't clear cut. If you are able to master a process of buying stocks that are relatively cheap in relation to their sector that have shown superior growth trends you will certainly be successful in the market.
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