Re: Biggest things you look for in a stock?
MIFan:
When looking at small cap stocks a few comments:
1. You need to look at stocks and how they trade relative to their peers.
2. PE ratio is not as important as implied valuation (market cap + debt - cash) to cash flow (EBITDA or EBITDA less maintenance capex)
3. You need to look at ownership - is management a big owner in the stock? Avoid small caps where managment or the Board has small ownership positions unless the stock is extremely undervalued.
4. If a small-cap is paying dividends something is wrong with the business fundamentals - why don't they reinvest money in the Company?
5. Another metric that is rarely used is cash on cash return (like a bond) If you were to buy this Company right now for its current implied valuation what would your return be if you just held the company for its cash flow?
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