The affordable growth screen combines two objectives that are often in tension: finding companies with strong expansion potential while avoiding the excessive valuations that usually come with it. By focusing on growth, reasonable valuation, and adequate profitability and health, the method aims to surface stocks that can compound earnings without demanding an unrealistic entry price. BROADCOM INC (NASDAQ:AVGO) is one of the names that currently qualifies under this approach, helped by its combination of accelerating earnings growth and a valuation that looks more reasonable on forward estimates.
Growth and Valuation: The Core of the Screen
Broadcom’s growth profile is the standout feature in its fundamental report. The stock earns a ChartMill Growth rating of 10/10, supported by strong historical and forward-looking figures.
- Earnings per share grew 39.21% over the past year, with a 25.23% average annual EPS growth over the last several years.
- Revenue increased 32.29% over the past year, with an average annual growth rate of 21.74%.
- Forward estimates are even stronger, with EPS expected to grow 39.98% per year and revenue projected to grow 37.49% per year.
- Growth is also accelerating, as both EPS and revenue growth rates for the coming years are above their historical averages.
On valuation, the picture is more nuanced but still fits the affordable growth criteria. Broadcom’s trailing Price/Earnings ratio is 52.62, which is expensive on an absolute basis and well above the S&P 500 average of 26.26. However, the forward P/E drops to 21.74, close to the S&P 500 forward multiple of 21.79. The PEG ratio based on near-term growth is considered low, which indicates that the market is not fully pricing in expected earnings acceleration. The company also trades cheaper than 75.21% of its industry peers on a price-to-forward-earnings basis.
The fundamental report also notes that Broadcom’s expected earnings growth of 56.42% in the coming years may justify a more expensive valuation. This is precisely the kind of trade-off the affordable growth strategy tries to exploit: paying a reasonable forward multiple for a business with above-average growth. Investors who want to examine the full fundamental breakdown can use this fundamental analysis page to review the underlying data and scores.
Profitability and Health: Supporting Pillars
Growth at a reasonable price is only sustainable when the underlying business is profitable and financially sound. Broadcom scores 9/10 on profitability, which provides a solid base for its growth story.
- Return on Equity is 33.43%, outperforming 89.74% of its industry peers.
- Return on Invested Capital is 12.93%, above its three-year average of 10.89%, indicating improved capital efficiency.
- Profit margin is 38.85%, and operating margin is 44.14%, both among the best in the Semiconductors & Semiconductor Equipment industry.
- Gross margin stands at 68.35%, also well above most competitors.
Health is decent but slightly less impressive, with a rating of 6/10. Broadcom has a strong Altman-Z score of 14.41 and a manageable debt-to-FCF ratio of 1.98. However, the report flags that ROIC is below the cost of capital and that share count has increased over the past year and five years. The current ratio of 2.24 and quick ratio of 2.01 indicate good short-term liquidity, but the debt-to-equity ratio of 0.71 is higher than most industry peers. These health concerns are worth monitoring, though they do not currently outweigh the positive growth and profitability signals.
Why This Combination Matters
For an affordable growth strategy, the key is balance. Strong growth without profitability can be a value trap, while high profitability without growth tends to come with limited upside. Broadcom brings both: a top-tier growth rating and a nearly top-tier profitability rating, with a forward valuation that is not out of line with the broader market. The health rating is not perfect, but the company’s solvency and liquidity metrics indicate it has the financial flexibility to fund its growth plans.
Investors looking for a more complete picture of how Broadcom compares to other stocks with similar characteristics can also review the screening methodology behind this approach. For additional names that fit this specific combination of growth, valuation, profitability, and health, the Affordable Growth screen offers a convenient starting point.
Disclaimer: This article is for informational and educational purposes only and does not constitute financial advice or a recommendation to buy or sell any security. Always conduct your own research and consider your risk tolerance before making investment decisions.
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Broadcom (NASDAQ:AVGO): A Fitting Pick for Affordable Growth Investors
The affordable growth screen combines two objectives that are often in tension: finding companies with strong expansion potential while avoiding the excessive valuations that usually come with it. By focusing on growth, reasonable valuation, and adequate profitability and health, the method aims to surface stocks that can compound earnings without demanding an unrealistic entry price. BROADCOM INC (NASDAQ:AVGO) is one of the names that currently qualifies under this approach, helped by its combination of accelerating earnings growth and a valuation that looks more reasonable on forward estimates.
Growth and Valuation: The Core of the Screen
Broadcom’s growth profile is the standout feature in its fundamental report. The stock earns a ChartMill Growth rating of 10/10, supported by strong historical and forward-looking figures.
On valuation, the picture is more nuanced but still fits the affordable growth criteria. Broadcom’s trailing Price/Earnings ratio is 52.62, which is expensive on an absolute basis and well above the S&P 500 average of 26.26. However, the forward P/E drops to 21.74, close to the S&P 500 forward multiple of 21.79. The PEG ratio based on near-term growth is considered low, which indicates that the market is not fully pricing in expected earnings acceleration. The company also trades cheaper than 75.21% of its industry peers on a price-to-forward-earnings basis.
The fundamental report also notes that Broadcom’s expected earnings growth of 56.42% in the coming years may justify a more expensive valuation. This is precisely the kind of trade-off the affordable growth strategy tries to exploit: paying a reasonable forward multiple for a business with above-average growth. Investors who want to examine the full fundamental breakdown can use this fundamental analysis page to review the underlying data and scores.
Profitability and Health: Supporting Pillars
Growth at a reasonable price is only sustainable when the underlying business is profitable and financially sound. Broadcom scores 9/10 on profitability, which provides a solid base for its growth story.
Health is decent but slightly less impressive, with a rating of 6/10. Broadcom has a strong Altman-Z score of 14.41 and a manageable debt-to-FCF ratio of 1.98. However, the report flags that ROIC is below the cost of capital and that share count has increased over the past year and five years. The current ratio of 2.24 and quick ratio of 2.01 indicate good short-term liquidity, but the debt-to-equity ratio of 0.71 is higher than most industry peers. These health concerns are worth monitoring, though they do not currently outweigh the positive growth and profitability signals.
Why This Combination Matters
For an affordable growth strategy, the key is balance. Strong growth without profitability can be a value trap, while high profitability without growth tends to come with limited upside. Broadcom brings both: a top-tier growth rating and a nearly top-tier profitability rating, with a forward valuation that is not out of line with the broader market. The health rating is not perfect, but the company’s solvency and liquidity metrics indicate it has the financial flexibility to fund its growth plans.
Investors looking for a more complete picture of how Broadcom compares to other stocks with similar characteristics can also review the screening methodology behind this approach. For additional names that fit this specific combination of growth, valuation, profitability, and health, the Affordable Growth screen offers a convenient starting point.
Disclaimer: This article is for informational and educational purposes only and does not constitute financial advice or a recommendation to buy or sell any security. Always conduct your own research and consider your risk tolerance before making investment decisions.
Read full article here »