7/14/2009

An overlooked metric to help identify value

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 & Services