This is a continuation of my search for the best small companies from the 200 listed in Forbes 2008.
The companies ranked 71-130 has yielded 8 results. To recap, below are the criterias of how the companies are being filtered.
- Immediately exclude financials (don’t understand or know how to value them)
- Run the companies through the intrinsic value spreadsheet with the PE as the growth rate, but capped at 15%. The selected companies shall exhibit;
- Positive, consistent and growing cash flows.
- Consistent margins. Fluctuating/decreasing margins over several years will not be accepted unless the other criterias are outstanding.
- Above average returns from capital investments (CROIC, ROE, ROA)
- Strong balance sheet
- Companies should have at least 5 years of operating history
- The companies that make the cut will then be reviewed individually
- Portfolio Recovery Associates (PRAA) – collects portfolios of defaulted consumer debt
- Techne (TECH) – develops hermatology controls and biotechnology products
- Computer Programs and Systems (CPSI) – designs hospital IT support systems
- Rocky Mountain Chocolate Factory (RMCF) – manufactures chocolate and other confectionery products
- Company with a long history and very honest and candid management.
- Credo Petroleum (CRED) – explores for oil & gas
- I was surprised that Credo made it past the filter as it is a business typical of high capex but it is one of the rare oil & gas companies that is cash flow positive. Margins are stable for a cyclical company.
- Dionex (DNEX) – makes analytical instruments for chemicals industry
- Neogen (NEOG) – develops products for food and animal safety
- Gen-Probe (GPRO) – develops and markets clinical diagnostic products
I noticed that as I kept going down the list, the quality of the businesses started to decline. Margins are inconsistent, returns are low or non-existent as well as growth in revenue and FCF.
No positions at time of writing
[tags]PRAA, TECH, CPSI, RMCF, CRED, DNEX, NEOG, GPRO, forbes[/tags]