# Growth at a Reasonable Price (GARP): Strategy for Smart Investors

## What Is Growth at a Reasonable Price (GARP)?

Growth at a reasonable price (GARP) is an equity investment strategy that seeks to combine tenets of both [growth investing](https://www.investopedia.com/terms/g/growthinvesting.asp) and [value investing](https://www.investopedia.com/terms/v/valueinvesting.asp) to select individual stocks. GARP investors look for companies that are showing consistent earnings growth above broad market levels while excluding companies that have very high [valuations](https://www.investopedia.com/terms/v/valuation.asp). The overarching goal is to avoid the extremes of either growth or value investing; this typically leads GARP investors to growth-oriented stocks with relatively low [price/earnings (P/E)](https://www.investopedia.com/terms/p/price-earningsratio.asp) multiples in normal market conditions.

### Key Takeaways

*   GARP investing merges growth and value strategies by focusing on companies with higher earnings growth than the market average while avoiding those with excessively high valuations.  
    
*   The PEG (price/earnings growth) ratio is pivotal for GARP investors to identify stocks where price valuations align with expected earnings growth, particularly seeking a PEG of 1 or less.  
    
*   Index funds, like the Invesco S&P 500 GARP ETF, offer a straightforward method to implement the GARP strategy, focusing on a balanced investment in growth sectors like healthcare and technology.  
    
*   GARP strategies, which provide a middle ground between pure growth and value investing, can potentially yield better returns during downturns compared to strictly growth-focused approaches.  
    

## How GARP Investing Works

GARP investing was popularized by legendary Fidelity manager [Peter Lynch](https://www.investopedia.com/terms/p/peterlynch.asp). While the style may not have rigid boundaries for including or excluding stocks, a fundamental metric that serves as a solid benchmark is the [price/earnings growth (PEG) ratio](https://www.investopedia.com/terms/p/pegratio.asp).

The PEG shows the ratio between a company's P/E ratio (valuation) and its expected earnings growth rate over the next several years. A GARP investor would seek out stocks that have a PEG of 1 or less, which shows that P/E ratios are in line with expected earnings growth. This helps to uncover stocks that are trading at reasonable prices.

In a [bear market](https://www.investopedia.com/terms/b/bearmarket.asp) or other downturn in stocks, one could expect the returns of GARP investors to be higher than those of pure growth investors but subpar to strict value investors who generally purchase shares at P/Es under broad market multiples.

## Comparing GARP and Value Investing Strategies

Value investors seek bargain stocks to increase potential profits and reduce the risk of loss if the stock underperforms. This fundamental principle is called the [margin of safety](https://www.investopedia.com/terms/m/marginofsafety.asp).

Value investors reject the efficient-market hypothesis, which claims that stock prices already reflect all available information. Value investors believe they can identify stocks that are overvalued or undervalued. They often use [discounted cash flows analysis (DCF)](https://www.investopedia.com/terms/d/dcf.asp) analysis to find a stock's [intrinsic value](https://www.investopedia.com/terms/i/intrinsicvalue.asp).

Famous value investors include [Warren Buffett](https://www.investopedia.com/articles/01/071801.asp), CEO, and chair of Berkshire Hathaway, which grew to become one of the largest publicly traded companies in the world.

## Implementing the GARP Strategy in Your Portfolio

An easy way to use the GARP strategy is by investing in an [index fund](https://www.investopedia.com/terms/m/marketindex.asp) that follows it. This way, you don’t have to analyze stocks yourself.

[Standard and Poor's](https://www.investopedia.com/terms/s/sp.asp) created the [S&P 500](https://www.investopedia.com/terms/s/sp500.asp) GARP Index, which tracks companies with steady growth, fair valuation, strong finances, and powerful earnings.

The Invesco S&P 500 GARP ETF ([SPGP](https://www.investopedia.com/markets/quote?tvwidgetsymbol=spgp)) is a fund that follows the S&P 500 GARP Index, investing 90% of its assets in its securities.

The fund's largest holdings are in [healthcare](https://www.investopedia.com/terms/h/health_care_sector.asp) (29.39%) and [information technology](https://www.investopedia.com/terms/t/technology_sector.asp) (21.40%). [Financials](https://www.investopedia.com/terms/f/financial_sector.asp) make up 17.28%, and consumer staples are the smallest at 3.71%. Communication services make up 5.61%. It includes well-known stocks like Meta, Adobe, and Cigna. The fund’s [expense ratio](https://www.investopedia.com/terms/e/expenseratio.asp) ratio of 0.36% makes it affordable.

> **Article Sources**
>
> 1.  CFA Institute. "[GARP Investing: Golden or Garbage?](https://blogs.cfainstitute.org/investor/2019/03/11/garp-investing-golden-or-garbage/)"
>     
> 2.  S&P Global. "[S&P 500 GARP Index](https://www.spglobal.com/spdji/en/indices/equity/sp-500-garp-index/)."
>     
> 3.  Invesco Distributors Inc. "[Invesco S&P 500 GARP ETF](https://www.invesco.com/us/financial-products/etfs/product-detail?audienceType=Investor&ticker=SPGP)."
>     
> 4.  Invesco Distributors Inc. "[Invesco S&P 500 GARP ETF, Fund Holdings](https://www.invesco.com/us/financial-products/etfs/holdings?audienceType=Investor&ticker=SPGP)."