Value-growth Screen

Author: Enterprising Investor Forum | Posted: 03-09-2007


We have decided to start to post a series of screening criteria to give readers some ideas when looking for interesting investing opportunities. The purpose of these ‘screens’ is to not to give you a final and preset ‘screen’ but to propose an initial foundation to build on and add your own input.

This first post is aimed at trying to identify ‘value’ Small-Caps with growth potential:

* Small-Caps tend to have higher rates of returns, growing faster than large-cap companies and typically using profits for expansion rather than to pay dividends. We will only take into account companies whose market value is between 500 million and 1 billion USD.

* Low P/E ratio firms tend to produce higher returns. We will only take into account P/E ratios under 17.

* Socks that are cheaper relative to their book value tend to earn higher total returns. We will only take into account P/B ratios equal or under industry average.

* Rerun on Equity, 5-year average over 15%. This is an important profitability ratio to ensure a strong track record. On top of this, for future profitability expectations: Earnings per Share (EPS) growth for the next 5 years of at least 15%.

* Last but not least, to take into account financial leverage, a Debt to Equity ratio equal or under the Industry Average.

Furthermore, if you are using the MSM Money Deluxe Stock Screener, you can also add the MSN rating as an additional parameter to look through the companies that come up in your screen. Hopefully, this will give you a good place to start.

Good Screening!