We all know the P/E ratio or the price to sales multiple but how often do we hear about price to the GP multiple.
A stock trading at a deep discount based on a low price or EV to gross profit can help provide insight into an overreaction to negative news or other non essential long term negative event.
Not only was I looking for companies generating large gross profits relative the price paid but the stocks had to also clear these hurdles
Dilution factor: Average shares outstanding over 3 years/TTM shares outstanding
Smart money: avoid stocks heavily shorted, Shares shorts as a percentage of the float <5 br="">
Avoid companies with a large decline in sales. Quarterly year over year revenue growth > -5%
Management greed test: Selling and general administrative cost less than 30% of revenue
A few of the stocks worth introducing tonight
Link to the ideas
Quadra Med Corp
QDHC
Price: 6.42 (not sure why i looked but noticed all cash takeover 12/09 for 126 M or 8.50 per share)
Average ROA past 4 years: 11.61
Significnat Positive Direct insider buying
Large company Share Buybacks: 4.474 million expended on share buybacks over the past 12 months
5.50 million paid in dividends to shareholder over the prior 12 months
Annual SGA/REV = 26.35%
NTA per share = 7.36
EV per share = 13.12
Industry:Business Software & Services5>