Growth at a reasonable price, or GARP for short, is an investing method that seeks out undervalued securities with significant growth prospects, thereby phasing out the risk of falling for value traps. Although GARP might sound like Utopia, it can be far from it when one’s screening process lacks robustness. Therefore, I leveraged TipRanks’ database to identify three well-positioned GARP stocks that I am bullish on, namely Delta Air Lines (NYSE:DAL), Airbnb (NASDAQ:ABNB), and TopBuild (NYSE:BLD).
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Let us traverse into a deeper analysis of the aforementioned investment opportunities.
Delta Air Lines (NYSE:DAL)
Delta Air Lines stock has surged by nearly 50% since the turn of the year, indicating that investors have started pricing in lower fuel costs and pre-covid travel volumes. Although Delta still faces numerous income statement hurdles, its operating profit margin improved from -8.4% in Q1 2022 to 2.2% in Q1 2023, lending investors the opportunity to price an inflection point.
Another positive occurrence worth considering is that Delta Air Lines’ total unit revenue is currently 16% higher than in 2019, indicating that the airliner’s top line has well and truly recovered from its pandemic-induced slump. Moreover, the U.S. inflation rate suggests it’s only a matter of time before the firm’s investors rediscover residual value.
Furthermore, Delta is experiencing significant idiosyncratic growth due to its partnerships with various companies, such as American Express (NYSE:AXP), allowing it to realize stronger branding and cost saving on its marketing strategy. Additionally, the firm’s small-to-medium-size business bookings market is growing exponentially, with the ever-growing participation of SMEs (small-to-midsized enterprises) in the labor force resulting in a future growth opportunity for Delta Air Lines.
Lastly, Delta Air Lines’ stock oozes value and growth. The stock’s forward price-to-earnings-growth ratio of 0.2x suggests its stock is fundamentally undervalued with reasonable growth in-store (a figure under 1x is generally considered undervalued). In addition, Delta recently retired $1.2 billion in debt, providing its investors with additional liquidity.
Is DAL Stock a Buy, According to Analysts?
Turning to Wall Street, Delta Air Lines earns a Strong Buy consensus rating based on 15 Buys assigned in the past three months. The average DAL stock price target of $57.43 implies 19.45% upside potential.
Airbnb (NASDAQ:ABNB)
Many analysts are skeptical of Airbnb, as it is a cyclical stock faced with turbulent macroeconomic variables. Nevertheless, few have acknowledged the fact that consumer confidence indices and inflation around the globe are starting to align more positively, lending Airbnb’s stock the necessary latitude to grow.
Airbnb’s latest quarterly financial results conveyed that its organic growth remains robust despite its outside challenges. For example, the company’s revenue ticked up by 20.48% year-over-year while its bookings reached an all-time high, suggesting both unitary and price growth. In addition, Airbnb produced a free cash flow figure of $1.6 billion in its latest quarter, leading to a trailing-12-month free cash flow margin of 44%.
Furthermore, the firm’s salient features are well-placed. Airbnb’s market share within the vacation rental market has risen above 20%, allowing it significant pricing power, which is partly why the company has an EBITDA margin of 22.15%, which is 108% higher than the sector median. Moreover, Airbnb’s substantial market share has allowed it to expand into untapped emerging markets, a strategy that could monetize very well.
In fact, the company’s vice president, Ellie Mertz, recently spoke of Airbnb’s emerging market expansion. Mertz stated, “We’re expanding beyond our core. We have some big ideas for where to take Airbnb next. We’re building the foundation for new products and services that we plan to launch in 2024 and beyond. At the same time, Airbnb is still underpenetrated in many markets around the world. So we’re increasing our focus on these less mature markets, and we are already seeing positive results.
“So let me just give you two examples. In Germany and Brazil, we rolled out our expansion playbook for accelerated growth. And as a result, we are now two — they are now two of our fastest-growing markets. And this playbook has, in fact, worked so well. So we are now expanding it to other markets around the world.”
Similar to Delta Air Lines, Airbnb’s price-to-earnings-growth ratio of 0.33 suggests that the stock possesses quality, growth, and value in abundance. Although various risks linger, most indicators imply that Airbnb provides investors with a GARP opportunity.
Is ABNB Stock a Buy, According to Analysts?
Turning to Wall Street, Airbnb earns a Moderate Buy consensus rating based on 12 Buys, 17 Holds, and three Sells assigned in the past three months. The average ABNB stock price target of $126.13 implies downside risk of 4.2%.
TopBuild (NYSE:BLD)
For those that are unaware, building permits within the United States have experienced a steady increase during the past quarter, reaching nearly 1.5 million versus the subdued 1.354 million filed in January. In addition, headlines suggest an interest rate pivot is due to initiate in early 2024, which has sent consumer confidence surging. As such, considering a best-in-class building materials stock like TopBuild seems prudent.
TopBuild is a North American powerhouse that produces and supplies insulation and building materials to the construction industry. Approximately 63% of the firm’s end market is residential, with commercial and industrial clients forming 28% and 9% of TopBuild’s offtake, respectively. Since late 2017, the company has completed 28 acquisitions, consequently increasing its addressable market to $16 billion from a previous $9.5 billion.
Furthermore, TopBuild released its first-quarter financial results in early-May, revealing year-over-year revenue growth of 8.2%. The event speaks volumes considering the macroeconomic uncertainty embedded into the economy during early 2023.
Additionally, TopBuild’s management affirmed its full-year guidance, predicting that total sales will likely settle between $4.7 billion to $4.9 billion, creating a forward price-to-sales ratio of 1.74 at the midpoint, which is undoubtedly respectable.
Lastly, TopBuild possesses a price-to-earnings-growth ratio of merely 0.26, illustrating the fact that the stock is a GARP contender.
Is BLD Stock a Buy, According to Analysts?
Turning to Wall Street, TopBuild earns a Moderate Buy consensus rating based on four Buys and four Holds assigned in the past three months. The average BLD stock price target of $267.57 implies upside potential of 1.35%.
Concluding Thoughts
Numerous GARP opportunities are on offer amid a pending cyclical recovery within corporate America, and my analysis indicates that Delta Air Lines, Airbnb, and TopBuild provide best-in-class opportunities.
