Best Small Companies Fair Value Estimates

A popular article on this blog has been the Forbes 200 Best Small Companies project that I undertook late last year. I went through 200 companies individually and applied a quick estimate of the intrinsic or fair value to the business. I was reminded of the results as I was going through the Forbes Best Big Companies and was curious to see where each of the small companies stood during the recent rally and whether the valuation I applied to each business was reflected in the stock price.

Originally, I ended up screening 42 companies out of 200. Of the 42, there were some that I felt were overpriced and a handful that were very cheap.

For example, Strayer Education (STRA) was clearly in the overpriced pile. At a stock price of $237.70, far too many safety seekers were rushing in causing the exact opposite effect. Its stock price was no longer suitable for “safety”. Consequently it has now fallen to $163 but I still feel it is overpriced.

An opposite example is Diodes (DIOD) which I felt was very cheap at $4.39. The stock price is now trading above $12 and getting closer to my estimate of $15. This is a 300% gain by investing in a good company. There is no need to speculate for magnificent returns.

However, not all companies are trading close to their estimated fair value. K-Tron (KTII) is actually still priced well below its fair value and below the price it was trading for when I wrote the article. I did however, take the opportunity to average down further in the mid $50’s.

After reviewing the differences in price and estimates of all the companies, I’m reminded of a couple of points.

  • Discounted Cash Flow valuation is an art, but if you are realistic about the inputs and keep a big margin of safety, it provides a very good measure of fair value.
  • The Ben Graham formula has always been more of an optimistic and best case scenario as it is based on earnings.
  • The current market with the DOW in the low 8000’s and S&P 500 in the 850’s seems to be a fairly valued market for many companies. Not all but many.

Forbes 200 Best Small Companies Fair Value Revisited

Out of the 42 that made the cut, 16 companies are still trading outside my estimated range. Some are within a $1 or 7% of my estimate price range so the accuracy could be better but I left it out to try and gauge a more accurate number.

This means that 26 out of the 42 are trading within the fair value range. This is an accuracy of 62%. Not bad considering I spent no more than an average of 1-2 minutes on each company and their business. Valuing each business was just as easy. You can refer to some other fair value estimates I performed compared to Morningstar.

Refer to the embedded PDF below to see the fair value estimates. The highlighted companies are those that are trading outside the fair value range i.e. both above and below fair value.

Companies priced below the fair value range include: KTII, CMTL, NTRI, JOSB, PRAA, RMCF, LOJN, CIR, RIMG, MCRI, MOV.
Forbes200 Best Small Companies Fair Value


I own shares of KTII at the time of writing

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