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3 great growth stocks to buy now

Investors can fall into many ‘camps’. There are growth camps, value camps and even deep-value camps. Another one of these ‘camps’ is for investors who choose to use an investing approach known as ‘Growth At a Reasonable Price’, or GARP for short. There are a couple of great aspects to GARP. Firstly, it encourages investors to seek out companies with good prospects for growth. Secondly, by stressing ‘reasonable price’ it forces the investor to consider valuation.

Exactly how an investor chooses to put GARP into practice is a matter for the individual, however here are three stocks which meet my ‘GARP’ test.

GARP Test requirements

1)      Member of the S&P/ASX 300 Index (Index: ^AXKO) (ASX: XKO)

2)      Pays a dividend

3)      Forecast to grow earnings by around 40% over the next two years

4)      Forward price-to-earnings (PE) less than its average one-year forward growth rate

5)      Long runway ahead

According to Research provided by Morningstar, gaming machines company Ainsworth Game Technology Limited  (ASX: AGI) is forecast to grow its earnings per share (EPS) by 47.5% over the next two financial years. With the shares currently trading at $4.36, its forecast financial-year 2014 PE is 20.3.

Telecom provider Amcom Telecommunications Limited (ASX: AMM) is forecast to grow EPS by 39.3% over the next two years. With the share price at $2.04, the forward PE is 20.4.

Investment bank Macquarie Group Ltd’s (ASX: MQG) EPS are forecast to race 65.8% higher in the coming two years. With the share price at $55.75, the stock is priced on a one-year forward PE of 15.5.

Foolish takeaway

Strictly speaking Amcom doesn’t meet my requirements as its multiple is slightly above 20 times and its growth rate slightly below 40%. That being said, paying up for quality can often be worthwhile, but overpaying is best avoided.

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Motley Fool contributor Tim McArthur owns shares in Macquarie Group.

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