For GARP investors

Growth at a price that makes sense.

15% earnings growth, P/E < 20, ROIC > 15% - find the rare names that compound without forcing you to pay a 50x multiple. We screen the full 44,722-stock universe so you are not limited to the 200 names CNBC shows you.

Last updated: 2026-05-21 · Reviewed by Javier Sanz, ValueMarkers Founder

The pain we solve for garp investors

PEG screeners are everywhere. What is missing is quality control: half the GARP names are growing through accounting tricks. Our Piotroski + Beneish overlay separates real GARP from manufactured GARP.

Must-haves we built in

PEG < 1.5 AND ROIC > 15% AND EPS growth (3y) > 15%
Beneish M-Score clean
Operating cash flow > Net income (no earnings inflation)
No share dilution > 2%/yr

VM features tailored to you

GARP screener with growth + integrity gates
Owner Earnings calculator (Buffett-style adjusted FCF)
Sector compounder screen
Earnings revision alerts

How we filter garp investor candidates

GARP investing - Growth at a Reasonable Price - was popularized by Peter Lynch and refined by Joel Greenblatt and others. ValueMarkers structures the GARP workflow around four independent quality gates layered on top of the basic PEG screen. First, ROIC > 15% over the trailing three years - this filters out companies growing through capital destruction (M&A that does not earn its cost of capital). Second, operating cash flow > net income on a TTM basis - this filters out companies whose growth is reported but not paid for in cash, the single most reliable indicator of earnings manipulation. Third, Beneish M-Score under -1.78 - which catches more subtle revenue-recognition aggressiveness that the OCF/NI ratio misses. Fourth, share-count growth under 2% annually - this excludes companies whose per-share growth is masked by serial dilution (common in software, biotech, and emerging-market financials). A name passing all four is what we call quality-GARP; the universe typically contains 60-150 names at any time and outperforms naive PEG screens by a meaningful margin.

Building the screen step by step

Start with the PEG anchor: P/E < 20 AND 3-year EPS CAGR > 15%, producing PEG < 1.3. Layer ROIC > 15% (trailing 3-year average) to filter for capital-efficient growth. Layer Beneish M-Score < -1.78 to filter out earnings inflators. Layer operating cash flow > net income on TTM basis to confirm cash backs the reported earnings. Finally, sort by 5-year EPS growth descending - the strongest GARP names combine high-quality cash flow with sustained earnings momentum. The resulting basket typically holds 15-30 names, weighted equally, rebalanced annually. Historical backtests of similar quality-GARP screens have outperformed broad indices by 3-6% annualized over rolling 10-year periods.

Common mistakes garp investors make

GARP investors get burned three ways most often. (1) Trusting the PEG ratio without checking ROIC - a company growing EPS at 20% by destroying capital (negative ROIC vs WACC spread) is creating no actual value. (2) Ignoring the operating-cash-flow check - the cohort of companies with OCF below net income includes many serial restaters and eventual blow-ups. (3) Treating analyst forward EPS estimates as fact rather than as a noisy forecast - GARP screens that use forward PEG instead of trailing PEG get fooled by sell-side optimism, especially near cycle peaks. Use trailing data plus a sanity check on the forward number.

Case study: TXN

Texas Instruments (TXN) screened as quality-GARP for most of 2020-2024: P/E ~22, 5-year EPS CAGR ~17%, ROIC ~28%, OCF/NI ~1.4x, Beneish clean, share count shrinking 1%/yr. The compounding played out roughly as the screen suggested - the stock returned ~14% annualized while peers with weaker quality scores delivered lower or negative returns in the same period.

Case studies illustrate how the ValueMarkers screen flagged this name historically; they are research examples, not investment recommendations. See our full disclaimer.

Frequently Asked Questions

What PEG ratio threshold should GARP investors use?+

Peter Lynch popularized PEG < 1.0 as the canonical buy zone, but in modern markets that threshold is met by very few high-quality names. ValueMarkers screens at PEG < 1.5 to retain a broader investable universe, while layering ROIC, Beneish, and operating-cash-flow quality gates that the original PEG framework lacked. The combined screen is more selective than naive PEG < 1.0 because the quality gates remove most of the false positives.

How does ROIC fit into GARP analysis?+

Return on Invested Capital measures whether a company's growth creates economic value. A business growing earnings at 20% while earning only 5% ROIC on a 9% cost of capital is destroying value with each additional dollar reinvested - the growth is destroying, not creating, shareholder wealth. GARP investors should require ROIC consistently above the company's WACC (typically 15%+ for the screen to be meaningful) to ensure growth is profitable, not just nominal.

Why is operating cash flow vs net income the key earnings-quality check?+

When operating cash flow consistently exceeds net income, the company is earning more cash than it reports - typically a sign of conservative accounting and high-quality earnings. When OCF runs persistently below net income, the company is reporting income it has not yet collected (or has capitalized expenses), which is one of the most reliable indicators of future restatement, write-down, or stock decline. The OCF/NI ratio over a 3-year rolling window is a cleaner signal than any single quarter's data.

Does GARP work in high-rate environments?+

Historically GARP has performed well in moderate-rate environments and lagged in two specific regimes: very low rates (2010-2021) where unprofitable high-growth names outperformed any quality factor, and rapidly rising rates (2022) where any P/E compression hurts even quality compounders. Across full cycles GARP has outperformed broad indices, but path-dependent returns vary widely. The strategy rewards multi-year patience.

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