When searching for stocks that offer a good mix of growth potential without demanding eye-watering valuations, the "Affordable Growth" investment strategy is a solid starting point. This approach filters for companies that are not only expanding their earnings and revenue at an above-average pace but also trade at reasonable price multiples. The logic is straightforward: buying a high-growth company at a fair price can provide a margin of safety and better long-term returns than chasing the most expensive names in the market. To qualify, a stock must score well on key fundamental metrics, specifically, a ChartMill Growth rating above 7, a Valuation score above 5, alongside decent scores for Profitability and Health. Recently, these criteria flagged Sociedad Quimica y Minera de Chile SA (NYSE:SQM), a Chilean chemical and mining giant, as a candidate worth a closer look.
Recent Performance & Growth Profile
SQM has demonstrated a remarkable growth trajectory, earning it a ChartMill Growth rating of 9 out of 10, which is a standout score even within the competitive Chemicals industry. The company’s past performance is impressive, with earnings per share surging by an eye-popping 246% over the last year. On a longer horizon, the EPS has grown at an average annual rate of 26.74%. While revenue growth over the past twelve months was a more modest 1% , the three-to-five-year average tells a different story, with revenue climbing at a strong 20.29% annually. Critically for this strategy, the momentum is not slowing down. Analysts expect this growth to accelerate significantly, forecasting an average EPS growth of 61.30% per year and revenue expansion of 30.38% over the coming years. This acceleration is a key ingredient for the affordable growth thesis, as it suggests the company’s best days may still be ahead.
Valuation Metrics
This is where the "affordable" part of the screen comes into play. At first glance, SQM’s trailing Price-to-Earnings (P/E) ratio of 42.69 looks steep, particularly compared to the S&P 500 average of 27.4. However, a deeper look at forward-looking metrics paints a very different picture. SQM’s Price-to-Forward Earnings ratio stands at just 15.16, which is not only well below its own trailing multiple but also significantly cheaper than the S&P 500’s forward average of 22.2. In fact, this forward P/E is lower than 70% of its peers in the Chemicals industry. The PEG ratio, which adjusts the P/E for growth, also supports a reasonable valuation. While its current profitability rating partially justifies the high trailing multiple, the expected 61% earnings growth strongly suggests the current price is not pricing in the full potential. The ChartMill Valuation rating of 5/10 reflects this nuanced picture—it is not signaling "deep value," but it indicates the stock is not egregiously overvalued given its prospects, fitting the affordable growth criteria perfectly.
Profitability & Health
Of course, strong growth and fair pricing mean little if a company’s underlying business is weak. SQM performs well here with a ChartMill Profitability rating of 8/10. The company has industry-leading margins: a net profit margin of 12.86% (outperforming 91% of peers) and an operating margin of 23.89% (also in the top 10% of the industry). Return on Equity sits at an impressive 10.34%, and its return on invested capital, while recently declining from a three-year average, still beats nearly 66% of its peers. These metrics confirm that SQM is not just growing for growth’s sake; it is generating real, profitable returns from its operations.
On the health front, the picture is more mixed but still adequate. SQM scores a 6/10, which is the minimum threshold to pass the screen. The company enjoys excellent liquidity, with a current ratio of 3.27 and a quick ratio of 2.25, both among the strongest in the industry. However, the health score is dragged down by a high debt-to-free-cash-flow ratio of 10.82 and a note that its return on invested capital is currently below its cost of capital. While these factors warrant monitoring, they do not currently signal distress. The strong liquidity and a debt-to-equity ratio of 0.75—which is in line with industry norms—provide a financial cushion.
Dividend Considerations
An often-overlooked bonus for the affordable growth investor is income. SQM offers a dividend yield of 10.90%, which is exceptional. While the dividend has been inconsistent over the last five years (decreasing by an average of 55% annually), the current payout ratio is only 0.73% of earnings, meaning the dividend is extremely sustainable. This high yield adds another layer of total return potential, provided the company maintains its payout policy.
Analyst Views & Conclusion
Considering all the moving parts, SQM presents a convincing case for a growth-at-a-reasonable-price investor. The company checks the primary boxes: strong historical and forecasted growth, a forward valuation that is attractive relative to that growth, and a strong profitability profile that supports its expansion. The concerns around financial health and the high trailing P/E are real but are balanced by strong liquidity and a very low payout ratio. For investors willing to look past the headline P/E and focus on forward earnings, SQM offers a rare combination of accelerating growth, reasonable valuation, and a massive dividend yield.
If you want to run this screen yourself and discover other stocks that fit this profile, click here to view the full Affordable Growth stock screener results. For a closer look at SQM's financials, you can also view the full fundamental analysis report.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. Always conduct your own research and consider your financial situation before making any investment decisions.