3 GARP Plays That Could Offer a Better Balance as Markets Turn Volatile

Key Points

• Flex reported strong earnings growth and raised its fiscal 2027 guidance, although its planned infrastructure spin-off adds uncertainty.
• Boot Barn continues to expand its store footprint as its share price decline makes its valuation more attractive.
• The SRH U.S. Quality GARP ETF offers diversified exposure to reasonably valued growth companies, but its limited trading volume presents liquidity considerations.

In an AI landscape that was already volatile, the turbulence surrounding NVIDIA Corp. NASDAQ: NVDA threatens to introduce even more uncertainty. Add to that end-of-year institutional rebalancing, the continued effects of inflation, and other risk factors, and it's unsurprising that investors may be seeking some stability. GARP stocks, those offering "growth at a reasonable price," combine compelling growth factors with more modest valuations. They cannot eliminate broader market volatility, but they may help investors limit valuation risk.

Two stocks, Flex Ltd. NASDAQ: FLEX and Boot Barn Holdings Inc. NYSE: BOOT, offer some of the characteristics of GARP stocks, including strong growth prospects available at a more reasonable earnings multiple. Investors might also consider a dedicated GARP exchange-traded fund (ETF), the SRH U.S. Quality GARP ETF NYSEARCA: SRHQ, which has limited liquidity but particularly strong returns heading into the end of the year.

FLEX: AI-Based Growth, But the Sell-Off Provides a Compelling Valuation

Flex's products are behind a host of consumer and industrial goods, with components and other items used in automotive, communications, health care, and other markets. More recently, though, investors have taken notice of Flex for its growing role in AI infrastructure.

This increasing importance in the AI space has had a significant impact on the company's growth prospects: last quarter, for instance, Flex increased its revenue by 25% year over year (YOY), beating analyst predictions by more than a quarter of a billion dollars. Adjusted earnings per share (EPS) also came in well ahead of expectations, prompting management to boost fiscal 2027 guidance.

Alongside strong growth prospects, Flex remains a fairly competitively priced company. It trades at about 16 times the midpoint of its fiscal 2027 adjusted earnings guidance, a figure that could become even more attractive if the AI sell-off continues. FLEX shares are down about 30% in the past month but remain up about 29% year to date (YTD).

Investors will want to watch as the company prepares to spin off its cloud and power infrastructure segment in 2027, but even with the uncertainty surrounding that restructuring, analysts are overwhelmingly bullish on FLEX shares, expecting roughly 78% in possible upside.

BOOT: Improving Valuation, Strong Growth Trajectory

Footwear and apparel retailer Boot Barn has the growth part of GARP down. For the company's latest quarter, revenue climbed by 15% YOY, and diluted EPS increased by 26%, both beating expectations. Margins are improving and could continue to climb thanks to better sourcing and buying scale.

The company is also expanding its physical footprint, planning to open between 75 and 80 locations this fiscal year (up from a previous prediction of 70), despite some concerns about consumer sensitivity to prices.

Where BOOT shares are not quite as compelling, however, is in the value side of GARP. Relative to earlier in the year, the company's price-to-earnings ratio is down considerably, the result of both improving earnings and a share price pullback of about 24% YTD. Still, BOOT trades at about 15 times forward earnings. While this is a more attractive valuation than earlier in the year, investors may want to see if the price dips lower before going all in.

SRHQ: A Diversified GARP ETF With Liquidity Trade-Offs

ETFs are popular in part because of their built-in diversification, which can reduce individual-company risk. Investors subscribing to the GARP approach but not willing to accept the volatility risk of any particular stock might turn to SRHQ for its breadth. The fund holds 80 constituents and leans most heavily toward health care and tech names, although it is diversified across sectors.

SRHQ tracks an index of companies specifically selected for their value, growth, and quality metrics, and the largest holding only represents about 2.7% of the total portfolio. However, investors should keep in mind that SRHQ is not a very heavily traded fund. Its low trading volume and fairly low asset base may present some liquidity challenges for investors anticipating making more frequent trades.

Still, there is a case to be made for the fund as a buy-and-hold prospect. This ETF's annual fee is fairly modest at 0.35%, and its mandate to focus on U.S. companies with GARP characteristics positions it to capitalize on shifting trends in the broader market.

The results of SRHQ's approach have been strong this year, with the fund posting returns of about 28% YTD. On top of that, it offers a modest dividend yield for a small passive income bonus, although investors should not anticipate much by way of income from the fast-growing GARP names.