Old School Value

This is a continuation of my search for the best small companies from the 200 listed in Forbes 2008.

You can refer to the results here: 1-15 | 16-32 | 33-70 | 71-130 | 131-160 | 161-200

The companies ranked 71-130 has yielded 8 results. To recap, below are the criterias of how the companies are being filtered.

1. Immediately exclude financials (don’t understand or know how to value them)
2. 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
3. Companies should have at least 5 years of operating history
4. The companies that make the cut will then be reviewed individually

Results

1. Portfolio Recovery Associates (PRAA) - collects portfolios of defaulted consumer debt
2. Techne (TECH) - develops hermatology controls and biotechnology products
3. Computer Programs and Systems (CPSI) - designs hospital IT support systems
4. Rocky Mountain Chocolate Factory (RMCF) - manufactures chocolate and other confectionery products
   • Company with a long history and very honest and candid management.
5. 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.
6. Dionex (DNEX) - makes analytical instruments for chemicals industry
7. Neogen (NEOG) - develops products for food and animal safety
8. Gen-Probe (GPRO) - develops and markets clinical diagnostic products

Remarks

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.

Disclosure

No positions at time of writing

Technorati Tags: PRAA, TECH, CPSI, RMCF, CRED, DNEX, NEOG, GPRO, forbes

You may also be interested in:

1. Forbes 200 Best Small Companies Project
2. Forbes Best Small Companies Project: Part 3
3. Stock Investments From Forbes 400 Best Big Companies
4. Forbes Best Small Companies Project: Part 2
5. Forbes Best Small Companies: Part 5