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.

PREVIEW
INDEX RECONSTITUTIONS

PREMIUM
ALL 20+ SCREENS

Grab your Idea Thesaurus copy by clicking the "Download" button below.

Idea Thesaurus #36616.38 KB • PDF File

If you have any questions or feedback, don't hesitate to reach out via email at [email protected].

Until next time,
The Tiger’s Prey

ABOUT
WEEKLY IDEA THESAURUS ISSUES

Published every Sunday at 13:00 ET.

“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.”

Joel Greenblatt, September 7, 2010, The Little Book That Still Beats the Market

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.