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Growth is all the rage today and the markets are quite frothy. Never mind the extraordinary risk presented to us due to the government economic data blackout during the shutdown. One wonders how the market will react when the government reopens and the data starts flowing again.
The was to handle this risk is to insist on reasonable valuations. You can still go for growth, but if you do not overpay for these stocks, you can cushion any economic shocks that may come. The benefit of course is that the future expected growth when it comes will take the stock price higher and you will profit.
I screened for the large cap stocks matching the Growth at a Reasonable Price criteria, which is as follows:
This screen was run in Stock Rover. Learn more about why this could be the only investment research tool you would ever need.
- 5 year average EPS growth > 15%/year
- Next year expected EPS growth > 15%
- Earning Yield > 5% (which is another way of saying the P/E ratio < 20)
- 5 year average sales growth > 8%/year
- PEG ratio, forward and trailing < 1.2
- Market Capitalization > $5 Billion
Since we are screening for EPS growth at higher levels than the Sales growth in the past 5 years, we are also looking for companies that have improving profitability and are getting stronger financially.
The following are the results:
GGAL is based out of Argentina. Taking a country risk like this is not my circle of competence so I would eliminate this stock from consideration. I will use the same reasoning for JD.com stock, although there are a few highly regarded investors that I know who are excited about this stock. I also remove EXEL from consideration as it is a biopharma company that I do not consider myself with sufficient domain expertise to analyze.
This leaves us with 2 stocks: Block and Toyota Motor.
XYZ – Block
Block provides payment services to merchants, along with related services. The company also launched Cash App, a person-to-person payment network. Most small business owners know and use Square terminals and Cash App is very popular among the younger crowd. Square is also set to offer Bitcoin custody and transactions for small businesses.
In 2024, Square’s payment volume was almost USD 250 million. Its EPS has been growing rapidly but the stock today trades at a mere 16.1 P/E ratio. It’s forward PEG ratio is 0.6, which is undervalued by many measures.
I am interested in shortlisting this stock for deeper review.
TM – Toyota Motor
Founded in 1937, Toyota is one of the world’s largest automakers, with 11.0 million units sold at retail in fiscal 2025, including 10.3 million across the Toyota and Lexus brands.
The sales and EPS are increasing nicely while the P/E ratio is at 9.2. As an automotive company, it tends to trade at smaller multiples. Automotive is also caught up in the tariffs related to Autos and steel, so there is a good amount of policy risk attached to the stock. While the opportunity maybe there, I would avoid taking this risk, specially since I can still find stocks that are not encumbered like this.
Avoid.
As the market continues to rise to new heights every week, and the economic conditions remain murky, it is harder to find high quality companies without having to pay up for the stock. These are some of the few available, and at this point I am happy to have found one stock to review deeper.
Shailesh Kumar, MBA is the founder of Astute Investor’s Calculus, where he shares high-conviction small-cap value ideas, stock reports, and investing strategies.
His work has been featured in the New York Times and profiled on Wikipedia. He previously ran Value Stock Guide, one of the earliest value investing platforms online.
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