GARP (growth at a reasonable price)

Definition

GARP is the deliberate middle: buy growing companies, but only when the price pays for less growth than the evidence supports. Its emblem is Lynch’s PEG heuristic — the P/E ratio divided by the growth rate, with PEG below 1 as the classic screen (paying 15x for 20% growth, not 40x for 20%). The style’s substance is symmetry: it accepts value’s discipline about price and growth’s insight about compounding, and rejects each school’s failure mode (traps on one side, any-price enthusiasm on the other).

How it works / structure

• The PEG arithmetic and its honesty limits: PEG compresses a valuation curve into one ratio — useful as a screen, crude as a model (it treats 10%→20% and 30%→40% growth jumps identically, ignores duration, capital intensity, and rates; labeled heuristic, not law); the platform treats PEG bands as entry FILTERS feeding real valuation work (fa-multiples-comparables regression against growth+margin is the grown-up form).
• The Lynch method around the ratio: categorize the company first (fast grower, stalwart, cyclical, turnaround, asset play — different math per category; applying PEG to cyclicals at peak earnings is the documented misuse); know-what-you-own research discipline; earnings, not price, as the tracked object.
• Engine-relevant parameters: growth input choice (trailing vs forward vs blended — forward inherits fa-guidance-estimates optimism bias, documented), PEG threshold by sector (capital intensity shifts fair PEG), quality gates (fa-ratio-analysis — leverage and returns filters keep the screen from selecting junk growth), and the reclassification trigger (Lynch’s categories are states, not identities — stalwarts become cyclicals).
• The factor-form echo: GARP screens approximate a quality+value+growth composite — strategy-factor-investing multi-factor logic in single-name costume; the documented factor correlations explain much of GARP portfolios’ behavior.

When it applies

Single-name selection where both schools’ screens fail (too expensive for value, too disciplined for growth); mid-cap habitats (Lynch’s documented hunting ground — covered thinly enough for mispricing, established enough for evidence); expectation-reset entries (post-derating growers whose PEG re-qualifies after the multiple compresses faster than the growth).

Risk profile & failure modes

• Growth-input fragility (the signature failure): PEG is only as honest as its G — forward estimates miss decelerations exactly when it matters; the screen passes tomorrow’s growth trap at yesterday’s growth rate.
• False precision: PEG 0.9 vs 1.1 is noise, not signal — banding beats point thresholds.
• Category misapplication: cyclicals screen as GARP at cycle peaks (peak E, peak G) — the documented worst-case entry; category-first discipline is the guard.
• Middle-path mediocrity: without the research layer Lynch actually practiced, mechanical GARP converges to a bland multi-factor tilt — the screen was never the method.

Evidence & limits

Lynch’s text is practitioner canon (labeled); PEG has no theoretical derivation — it is a heuristic whose factor footprint is documented via its components. Lynch’s own record (Magellan 1977-1990) is documented history; attribution between method and era is unresolvable. The KB carries GARP as a disciplined screen grammar, not an evidenced premium of its own.

Falsifiable-thesis examples

Illustrations only, not signals:

• “X (fast-grower category, PEG 0.8 on trailing blended growth, passing leverage and margin gates) re-rates to sector-median PEG within 2 years while growth persists (compression-closure thesis)” — falsified by the paired multiple/growth path.
• “A PEG<1 + quality-gate screen outperforms both the pure-value and pure-growth deciles on risk-adjusted return over the replay decade (middle-path check)” — falsified by the cohort comparison.

Cross-references

• The parents: style-value-investing, style-growth-investing
• The grown-up valuation form: fa-multiples-comparables
• The input risk: fa-guidance-estimates; the gates: fa-ratio-analysis
• The factor echo: strategy-factor-investing