2/07/2010

Micro cap stocks with potential hidden value creation

from share buybacks at discount prices. I only selected stocks buying back shares during the last quarter of 2008 and the first quarter of 2009. The thought was prices were significantly depressed during this time period. After that filter I also applied the following.

1) A margin of safety as measured by a strong balance sheet, market capitalization / Enterprise value <1.35

2) Mean Reversion: 3 year stock return < 0%

3) Share count outstanding reduced from the 2004 balance.

4) Potential discount to normalized earnings using the following formula; Average operating income from 2005 to 2008 as a percentage to current enterprise value greater than the operating income over the prior 12 months as a percentage of the current enterprise value.

5) Share short as a percentage of float less the 5%

6) Improved valuation based on TTM P/B and P/S ratios versus the 05-08 ratios.

See the 5 selected ideas

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