The October 27,2008 issue of Forbes lists the 200 best small companies of the US. These may be good companies, but I want to know whether they are good investments. So I’ve set up a new challenge.
My goal – go through each company and find the ones worthy of investment.
Since there are 200 companies to go through, the search process will have to be quite mechanical and quick in order to get through the list and to filter out the less than stellar companies.
- 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
You can refer to the results here: 1-15 | 16-32 | 33-70 | 71-130 | 131-160 | 161-200
Going through the first 15 have already produced 7 candidates for further analysis. They are
- Quality Systems (QSII)
- PetMed Express (PETS)
- Deckers Outdoor (DECK)
- Hittite Microwave (HITT)
- K-Tron International (KTII)
- Dynamic Materials (BOOM)
- Middleby (MIDD)
Just by looking at the numbers I can see why they made the list.
Also, these companies have all been trading at a premium, some still are, until recently. See the table below.
If potentially good companies keep appearing at this rate, I’ll be very busy over the holiday season.
I’ll be posting updates as I continue down the list so check back soon.
Disclosure: I only own KTII as of this writing
[tags]QSII, PETS, DECK, HITT, KTII, BOOM, MIDD, small cap, stock analysis, forbes, intrinsic value [/tags]
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November 18th, 2008 at 1:48 am
This is great! Thanks for do it, I look forward to your results.
Cheers.
Ethan
November 19th, 2008 at 9:15 am
Im looking forward to the results as well.
Just so many things to do..
January 7th, 2010 at 9:00 am
This is great work.
Question: When you use the P/E as the growth rate, aren’t you relying too much on the premium applied to the stock’s price as a fair representation of the estimated growth of the company? I understand it is a quick and dirty way to rank these companies, but I’m curious to hear your thoughts. Thanks.