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Chapter 5. Analysis Tool #2: Valuation > Growth at a Reasonable Price

Growth at a Reasonable Price

Many growth investors don't spend much time worrying about the subtleties of stock valuation. Instead, they adhere to a “keep it simple” philosophy. In their view, valuation boils down to earnings and earnings growth.

These investors look for a balance between price and expected earnings growth. Specifically, they want to buy growth at a reasonable price (GARP). The reasonable price is determined by comparing a stock's P/E to the company's expected annual earnings growth rate.


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