15 Overvalued Small Caps from Russell 2000

When searching for potential short/sell opportunities, The Applied Finance Group (AFG) screens companies using its proprietary Sell Criteria variables, starting with Economic Margin (EM). Economic Margin is a measure of corporate performance that identifies how profitable a company is by measuring how much the company earns above or below its cost of capital. In addition to corporate performance, AFG identifies companies that are unattractively priced using its valuation model. Lastly, AFG evaluates how well companies are run using the Management Quality score, which identifies companies with management teams that destroy wealth.

The 15 firms listed below all meet AFG’s Sell Criteria and all look extremely overvalued according to AFG’s valuation model. These companies all possess the characteristics of a bad investment and may be a potential torpedo lurking in your portfolio. AFG has proven successful since 1996 at identifying good companies as well as sell opportunities, providing a solid buy/sell spread.

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15 Overvalued Small Cap Stocks - Russell 2000 (ex.Financials)

Economic Margin Defined - A measure of corporate performance that captures off balance sheet items, by looking at how much a company is earning above or below their cost of capital. EM is expressed in a % or margin. The Economic Margin Framework™ is more than just a performance metric as it encompasses a valuation system that explicitly addresses the four main drivers of enterprise value: profitability, competition, growth and cost of capital.

Comments

[SevePC:]

How you can include drug/diagnostic development stage companies in this list is beyond comprehension.

Jul 08 06:00 PM

[satyr:]

Several of these are special situations. Applying formulas ignores fairly important company or industry dynamics that should be considered in each case. As an aside, some of the sector classifications are misleading.

Jul 09 02:32 PM

[BambamPoop:]

I agree with sevepc..... JAV should not be on this list. I suppose after the PDUFA you could re-evaluate, but until then how can you put any value on this?


On Jul 08 06:00 PM SevePC wrote:

> How you can include drug/diagnostic development stage companies in
> this list is beyond comprehension.

Jul 15 10:56 PM

[CRZ:]

SevePC 1: Value Exp 0
I know this is a short time view, but thought would point it out. Since this article was written on July 8, EXEL is up 30%.

Value Exp should not include biotechs (or any stocks) that are losing money but have high potential in their analysis. This stock might go down in the nearterm. But judging the potential based on how much a "company is earning above or below it's cost of capital" is not always relevant.

Jul 24 05:33 PM

[bramps:]

I happened to buy exel the same day your article claimed it to be overvalued and sell. I said it then and now I'll confirm, throw away your ouiji board it don't work.

Try the monkey method. You'll do better!!!!!

Jul 26 12:44 AM