{"id":47,"date":"2009-05-12T17:34:00","date_gmt":"2009-05-12T15:34:00","guid":{"rendered":"http:\/\/www.blog.asmus-puhl.com\/?p=47"},"modified":"2009-05-12T17:34:00","modified_gmt":"2009-05-12T15:34:00","slug":"some-investment-criteria-for-small-and-midcap-companies","status":"publish","type":"post","link":"http:\/\/www.blog.asmus-puhl.com\/?p=47","title":{"rendered":"Some Investment Criteria for Small and MidCap Companies"},"content":{"rendered":"

This blog favors stock picking of small and midcap companies.<\/span><\/p>\n

… so good….<\/span><\/p>\n

but what are the criteria to evaluate a company?<\/span><\/p>\n

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For me four criterias are the most important:<\/span><\/p>\n

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Strong balance sheet, earnings power and cash flow<\/strong><\/em><\/span><\/p>\n

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I would not invest in companies which have a debt loaden balance sheet or which even in good times do not generate strong cash flow. They would be too vulnerable in difficult times (as we can experience right now…..)<\/span><\/p>\n

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Certainly, a dividend can add nicely to the investment return over time but if a small fast growing company has better use internally for the money it should reinvest it in the business.<\/span><\/p>\n

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A sustainable competitive advantage:<\/strong><\/em><\/span><\/p>\n

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The best companies to invest in are surrounded by a wide moat filled with crocodiles as Berkshire Chairman Warren Buffet puts it.<\/span><\/p>\n

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Those competitive advantages can be strong brands, patents, de facto standards, or low cost production processes which can not easily be duplicated by competitors.<\/span><\/p>\n

Long standing good relationships with important clients belong here too.<\/span><\/p>\n

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These factors normally lead to above average earnings and cash flow power.<\/span><\/p>\n

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Honest Management:<\/strong><\/em><\/span><\/p>\n

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This is perhaps the most difficult criteria to assess but the most important too!<\/span><\/p>\n

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I do like intelligent capital allocation (and not risky and exaggerated M&A activity), reasonable executive compensation (and not exaggerated option grant).<\/span><\/p>\n

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The perfect match is certainly when founders and\/or executives are still large shareholders so the interests of them are more aligned with outside shareholders.<\/span><\/p>\n

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The share price is cheap <\/strong><\/em><\/span><\/p>\n

which can happen when p.e.<\/span><\/span> <\/strong><\/em><\/span><\/p>\n

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– the company already is a great business but so small that it is unknown and does not have the attention of many analysts,<\/span><\/p>\n

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– the company faces a temporary setback caused by bad news from its business or caused by a general negative stock market sentiment. <\/span><\/p>\n

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This blog favors stock picking of small and midcap companies. … so good…. but what are the criteria to evaluate a company? For me four criterias are the most important: Strong balance sheet, earnings power and cash flow I would not invest in companies which have a debt loaden balance sheet or which even in […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[3],"tags":[],"_links":{"self":[{"href":"http:\/\/www.blog.asmus-puhl.com\/index.php?rest_route=\/wp\/v2\/posts\/47"}],"collection":[{"href":"http:\/\/www.blog.asmus-puhl.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/www.blog.asmus-puhl.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/www.blog.asmus-puhl.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/www.blog.asmus-puhl.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=47"}],"version-history":[{"count":9,"href":"http:\/\/www.blog.asmus-puhl.com\/index.php?rest_route=\/wp\/v2\/posts\/47\/revisions"}],"predecessor-version":[{"id":56,"href":"http:\/\/www.blog.asmus-puhl.com\/index.php?rest_route=\/wp\/v2\/posts\/47\/revisions\/56"}],"wp:attachment":[{"href":"http:\/\/www.blog.asmus-puhl.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=47"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/www.blog.asmus-puhl.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=47"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/www.blog.asmus-puhl.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=47"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}