Perhaps my favorite place to find potential value investments is the magic formula screen. Unfortunately, the screen has a $50m market cap minimum. With that in mind, I thought I’d create a micro cap magic formula screen. I took $48m as the max market cap, $15m on the minimum market cap (below that level, the data starts to get really, really iffy) and ran a screen on all US listed stocks. Then, using the magic formula methodology, I ranked them all on a earnings yield basis (EV / EBIT) and ROIC basis (how the rankings work- the stock with the highest ROIC is assigned a one. The next highest ROIC is assigned a two, etc. For EV / EBIT, the stock with the lowest EV / EBIT is given a one, next lowest a two, etc.) I then added the two scores up to rank the companies (so you wanted a lower score). For example, a stock that ranked 2nd in EV / EBIT and 5 in ROIC would have a total score of 7 and beat a company that ranked 1st in EV / EBIT in 8th in ROIC (a total score of nine). I haven’t looked into any of the stocks yet, and databases sometimes put out strange data on microcap stocks, so be sure to do your own research before investing in any of these!!!!!! Still, the list should be pretty interesting.
(as always, I’m having trouble importing tables into wordpress. If anyone has any tips on making it easier, please let me know. You can find the spreadsheet here if it doesn’t load properly)
Just a quick glance at the stocks reveals a couple I’ve discussed before- PSSR was mentioned a few months ago, as was KSW (a holding of mine) and ADVC. I’ve also looked at SPAN, JVA, BDMS, and JCTCF before, but never really looked to deeply into them. Anyway, happy hunting.
Disclosure- long KSW
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- Checking out the teen retail sector
- Links of interest
- EVI- a profitable microcap trading for near cash
- Wow that’s cheap! But could it be a fraud?
- The lazy man’s guide to finding undervalued micro-caps