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Idea Thesaurus #36
Past Week's Events and a List of Common Screening Criteria
Hello. Past week’s events, which offer a far more fertile hunting ground than traditional quantitative screens, have been compiled once again into a downloadable and printable file, available for free. As I keep mentioning, by the time a stock shows up on a quant screen, it’s often too late to capitalize on the opportunity. The solution is to move beyond quantitative screeners altogether.
Yet, the vast majority of investors still rely on them in an effort to shrink the investment universe of 67.4k public companies, as of Friday, into a more manageable subset. Over the past two weeks, I’ve reviewed over 300 articles from some of the most active and respected small cap communities, noting down frequently mentioned and widely accepted microcap screening criteria.
With a reminder that the future trajectory of fundamentals, not their current state, is what truly matters, I’m sharing them below:
Country of Exchange: U.S., Canada, Western Europe, and/or Australia
Country of Operations: Not China
Industry: Not Oil & Gas, Metals & Mining, and/or Biotech
Market Cap: <$300mm, ideally <$50mm
Stock Price: >$0.05
LTM Revenues: >$10mm
Gross Margins: >20%, ideally >50%
Sales Growth: >10%, ideally >25%
LTM Earnings: Positive
Earnings Growth: Faster than Sales Growth
ROE: >20%
EV/EBITDA: <10x, ideally <7x
PEG: <1
Shares Outstanding: <50mm, ideally <30mm
Insider Ownership: >10%, ideally >30%
Institutional Ownership: <10%
From here, there are countless combinations of these and other criteria to consider. For example, Ian Cassel of MicroCapClub has gone so far as to assign acceptable peak cash salaries for CEOs based on financial performance:
Unprofitable companies to $1mm EBITDA: $200k
$1mm-$5mm EBITDA: $250k
$5mm-$10mm EBITDA: $300k
Thanks for reading, and I hope you find this valuable.
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The Tiger’s Prey
ABOUT
WEEKLY IDEA THESAURUS ISSUES
“Choosing individual stocks without any idea of what you're looking for is like running through a dynamite factory with a burning match. You may live, but you're still an idiot.”
Idea Thesaurus is an idea generator that aggregates 20+ high signal-to-noise ratio idea screens of U.S.-listed stocks. It serves as the initial step in a robust and repeatable fundamental investment process. While occasional opportunities may arise from various idea sourcing activities, such as reading the business press, scrolling through Fintwit, or scanning new 52wk lows, each Idea Thesaurus issue focuses on systematically and consistently monitoring the most actionable event-driven stock screens.