It’s finally that time of year again where I go through 200 companies that made it to Forbes 200 Best Small Companies list.
There has been a big shuffle this year with 71 companies from last year falling out of the list. The requirement is that the company have annual revenue between $5 million and $750 million, be publicly traded for at least a year and have a stock price no lower than $5.
The one big issue I see with the Forbes list is that they refer to “best” as growth in sales which isn’t something value investing considers.
- 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
3. Companies should have at least 5 years of operating history
I’ll only be going through and commenting on each of the first 10 companies in this initial post. Future posts will only discuss fundamentally good companies.
Specialty retailer of hardwood flooring.
Too short history but the company makes good FCF and excellent CROIC. Looks to be trading a big premium with the growth it has exhibited but a company to keep an eye on should prices fall one day.
DCF Calculation: $14.31
Graham Formula Calculation: $11.32
Operates a low-cost airline serving resort locales such as Las Vegas and Orlando.
Never liked airline companies. Top line may have increased but bottom line is still weak with barely any FCF consistency or growth.
DCF Calculation: $14
Graham Formula Calculation: $18.71
Creates software designed to automate and streamline administrative functions required for operating a medical or dental practices.
My previous analysis of QSII showed how much I was wrong. My intrinsic value estimate was between $22-$36 while it is now trading at $63. QSII continues to grow at an amazing pace on both the top and bottom line.
Provides post-acute health care services to patients through its home nursing agencies, hospices and long-term acute care hospitals.
DCF Calculation: $33
Graham Formula Calculation: $28.14
Sells over 100 whole bean and ground coffee selections, hot cocoa, teas and coffees in K-Cup portion packs, Keurig single-cup brewers and other accessories.
The Keurig single-cup brewers may be selling like hotcakes but I still don’t see how it could be worth $73 as the market implies. A pure growth stock. I do not see fundamentals supporting it at all.
Graham Formula Calculation: $10.19 (even with a 20% growth rate!)
Provides medical transcription services to the healthcare industry.
Graham Formula Calculation: $10.33
Business of hosting and cloud computing.
Maybe I should switch my value investing blog to Rackspace.. hmm
Develops and sells devices that use spintronics, a nanotechnology that relies on electron spin rather than electron charge to acquire, store and transmit information.
Graham Formula Calculation: $24.67
Provider of online postsecondary education directed at the needs of the military and public service communities.
Graham Formula Calculation: In the $7-8 range
Develops, manufactures, markets, and sells X-ray inspection and other detection solutions for homeland security and other targeted markets.
Graham Formula Calculation: $70.01
The first 10 companies all fall into the growth stock category. As a value investor, I wouldn’t be placing any bets with these companies just yet. Some look to be selling for much too high a premium.
I do like ASEI as it looks to have a solid balance sheet and is able to convert its top line to the bottom.
Look out for the next set of Forbes Best Small Companies.
No positions in any stocks mentioned.