Five GARP Stocks to Consider

by: Jersey Trader

Many investors use the PEG ratio for finding stocks with low valuation ratios relative to growth. However, I think that the PEG ratio does not include enough factors, and I prefer to use the enterprise value to operating cash flow to growth (EV/OCF/G) ratio. I like this metric better for two reasons, 1) enterprise value penalizes debt and rewards cash, and 2) operating cash flow is less volatile and harder to fake than earnings. With that in mind, I decided to highlight a few GARP (Growth at a Reasonable Price) stocks using this metric.

For a stock to be included below, I required it to have projected growth of over 10%, a return on investment of over 10%, and a debt to equity ratio of below 100%. I then picked five stocks from different industries with a low EV/OCF/G ratio.

Bridgepoint Education, Inc. (NYSE:BPI)
Bridgepoint Education, Inc. (Bridgepoint), incorporated in May 1999, is a accredited provider of postsecondary education services. The company offers associate's, bachelor's, master's and doctoral programs in the disciplines of business, education, psychology, social sciences and health sciences. It delivers its programs online, as well as at its traditional campuses located in Clinton, Iowa, and Colorado Springs, Colorado. As of December 31, 2009, it offered approximately 1,150 courses, 60 degree programs and 125 specializations and concentrations. As of December 31, 2009, it had 53,688 students enrolled in its institutions, 99% of whom were attending classes online.

  • EV/OCF/G: 0.19
  • Projected Growth Rate: 26.25%
  • Return on Investment: 70.79%
  • Total Debt to Equity: 0%
  • Quick Ratio: 1.77

(Click to enlarge)

Power One Incorporated (NASDAQ:PWER)
Power-One, Inc. (Power-One), incorporated in 1973, is a designer and manufacturer of energy-efficient power conversion and power management solutions for renewable/alternative energy, routers, data storage, servers and data centers, wireless communications, optical networking, semiconductor test equipment, industrial markets and custom applications.

  • EV/OCF/G: 0.23
  • Projected Growth Rate: 24.83%
  • Return on Investment: 35.13%
  • Total Debt to Equity: 15.43%
  • Quick Ratio: 1.42

(Click to enlarge)

True Religion Apparel, Inc. (NASDAQ:TRLG)
True Religion Apparel, Inc. (True Religion) designs, markets, distributes and sells apparel under the brand name True Religion Brand Jeans to consumers on six continents, including North America, Europe, Asia, Australia, Africa and South America. The company designs, markets, distributes and sells fashion jeans and related sportswear apparel.

  • EV/OCF/G: 0.33
  • Projected Growth Rate: 20%
  • Return on Investment: 19.57%
  • Total Debt to Equity: 0%
  • Quick Ratio: 1.27

(Click to enlarge)

POSCO, incorporated on April 1, 1968, is an integrated steel producer in Korea. It produced approximately 31.7 million tons of crude steel during the year ended December 31, 2009, a substantial portion of which was produced at Pohang Works and Gwangyang Works. Pohang Works has an annual crude steel and stainless steel production capacity of 15 million tons, and Gwangyang Works has an annual crude steel production capacity of 18 million tons. POSCO manufactures and sells a diversified line of steel products, including hot rolled and cold rolled products, plates, wire rods, silicon steel sheets and stainless steel products.

  • EV/OCF/G: 0.34
  • Projected Growth Rate: 11.85%
  • Return on Investment: 20%
  • Total Debt to Equity: 15.65%
  • Quick Ratio: 1.33

(Click to enlarge)

AmSurg Corp. (NASDAQ:AMSG)
AmSurg Corp. is engaged in developing, acquiring and operating ambulatory surgery centers (ASCs) in partnership with physicians throughout the United States. An AmSurg surgery center is typically located adjacent to or in close proximity to the medical practices of the company’s physician partners. Each of its surgery centers provides a range of surgical procedures.

  • EV/OCF/G: 0.34
  • Projected Growth Rate: 12.86%
  • Return on Investment: 20.52%
  • Total Debt to Equity: 52.88%
  • Quick Ratio: 3.14

(Click to enlarge)

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.