Enter your tickers in the text below
Do you have a stock that passes the 85% rule?
$DNP (+1.03%) = 87%
$DTE (-0.51%) = 83%
General:
Sit in the chair of an equity analyst.
Go through the following 15 criteria, give the topics ( 1 to 15 stars from 1 to 5 whether the answer is positive or negative), and complete with comments as to why yes/no.
For financial ratios and metrics, explicitly state which quarterly or annual report (10-K / 10-Q) the numbers are from."
At the end, he company must meet at least 85% to qualify to my portfolio.
END SCORE = number of stars achieved/Maximum stars achieved x100%.
Indicate GO or NO GO based on 85%
1)Business Model
1a)Indicate how the company makes its money with a brief business summary
2a)Does the business model look attractive following the average business and equity analyst, if yes/no why?
2Management
2a)Does management have a strong track record of creating shareholder value?
2b)Does management itself have a stake in the company?
3)Competitive advantage
3a)What distinguishes the company from its competitors?
3b)Does the company have pricing power ? why yes/no?
4)End market
4a)What are the company's main competitors?
4b)Is the market growing at an attractive rate?
5)Key risks
5a)What are the key risks to the company?
5b)Are there any potential "black swans"?
6)Balance sheet
6a)Does the company have a healthy balance sheet?
6b)Is there a lot of goodwill on the balance sheet?
7Capital intensity
7a)How much capital does the company need to operate?
7b)Does the company invest a lot in future growth ( growth CAPEX)?
8)Capital allocation
8a)How efficiently does management allocate capital?
8b)Does the company have a high and robust ROIC ( Return on invested Capital)?
9)Profitability
9A)How much profit does the company make per €100 of sales (profit margin)?
9b)Does the company convert most of the profit into free cash flow?
10)Historical Growth
10a)Has the company historically grown sales by more than 6%?
10b)Has the company historically grown profits by more than 7%?
11)Equity Compensation
11a)Does the company use stock compensation to reward management and employees?
11b)Are outstanding shares increasing or decreasing?
12)Outlook
12a)Does the future look good, if yes/no why?
12b)Can the company grow its sales and profits by more than 5 and 7%?
13)Valuation
13a)At what valuation is the company currently trading?
13b)Is the stock price currently undervalued or overvalued? ("Calculate the intrinsic value based on a simple 3-scenario Discounted Cash Flow (DCF) model (Bear, Base, Bull) with a discount rate of 10%.")
13c)Give the average price target euro/dollar as per average stock analysts
14)Owners Earnings
14a)Owners Earnings = EPS Growth + Dividend Return.
Has the company grown owners earnings by more than 10% per year
15)Historical Value Creation
15a)Has the company created a lot of shareholder value in the past?
15b)By how much % has the stock price grown annually since the IPO?
Financial (indicate with bullets green = positive orange=moderate red=bad
Ratio Formula Positive if
P/E Ratio Price Per Share / Earnings Per Share <20
ROIC NOPAT/Total Inv Capital >15%.
D/E Ratio Debt/Equity <1
EPS Net Income/Share Outstanding >10% CAGR
ROE Net income/Equity >15%
EBIT Margin EBIT/Sales >10%
Gross Margin Sales-COGS/Sales >40%
The 10 "Final Touch" Questions
For the criteria below, please rate from 1 to 5 stars.
Scorecard Total
- Less than 20 points: Avoid (High Risk / Low Quality).
- 20 - 29 points: Moderate Quality (Fair Quality)
- 30 - 39 points: Good Quality (Good Quality)
- 40 - 50 points: Exceptional Quality. This is what we are looking for)
Table 1: Competitive Advantages (Moat)
Question
Criterion / Guideline
Q1: Pricing power
Annual price increase of 2-5% possible + sales growth exceeds volume growth.
Q2: High Switching Costs.
Customer retention (Retention Rate) is greater than 95% and the product/service is business critical integrated with the customer.
Q3: Broadening the 'Moat'.
Is competitive advantage increasing? (Visible through sustained pricing power and margin expansion).
Table 2: Economic Characteristics & Sustainability
Demand
Criterion / Guideline
Q4: Scalability
Incidental/marginal margins are greater than 50% + operating margins increase structurally.
Q5: High ROIC
ROIC is greater than 15%, is stable or increasing, and is well above the cost of capital (WACC).
Q6: Profitable Growth
Free cash flow (FCF) is growing faster than sales + stable or expanding margins.
Q7: Customer Diversification
No individual customer accounts for more than 10% of sales + the company has thousands of active customers.
Q8: Smart Capital Location
Disciplined share repurchases, strategic acquisitions (M&A), growing dividends and efficient capital expenditures (CAPEX).
Q9: Adaptability
Successful strategic direction changes (pivots) in the past + emergence of new, promising revenue streams.
Q10: Business threats (Kill the Business).
Are the biggest existential threats clearly identified and actively managed by management?
