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Shiraz Lakhi
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  • 7 Consumer Stocks With The Lowest Enterprise Value To Free Cash Flow (EV/FCF) Ratio

    Stock Screen Of The Day - Pre-Open Tuesday 2nd June 2015:

    The EV/FCF ratio allows analysts and investors to compare stocks, preferably in the same sector or industry, for potentially undervalued trading ideas. The ratio, a superior version of the more simplistic (and flawed) P/E ratio, is calculated as Enterprise Value (or EV), divided by the trailing 12 months free cash flow (or FCF).

    Enterprise Value (the first element of the EV/FCF ratio) is a more complete measure of a company's value. The EV is often used by professional investors, and private equity firms with an eye on potential takeover of undervalued companies, as it represents a more total valuation alternative to the market capitalization...

    Whereas the market cap is simply the company share price multiplied by the number of shares, EV is calculated as the market capitalization plus the debt, minus cash and cash equivalents. The EV is effectively the value a potential buyout investor would have to consider (the market capitalization plus debt, minus cash) in purchasing or taking over control of the company, hence serves as a true measure of the overall value of a business.

    The free cash flow (the second element of the EV/FCF ratio) is the trailing 12 months 'cash generated from operations' (an easy to find line item within the cash flow statement), minus the capital expenditure (or CAPEX). Hence the term 'free' cash flow (what is left over after capex). The EV/FCF ratio filter, available free within the stock screener, enable investors to efficiently shortlist those companies which appear relatively undervalued, for further study and analysis...

    Companies with a low EV/FCF ratio, combined with a strong balance sheet, and recent investor interest (price appreciation backed by strong volume) provide for a simple strategy to capture undervalued stocks currently on the move.

    The following stock screen looks for companies within the consumer discretionary (choice purchases) sector, with a market capitalization above US $50 million, average daily volume traded in excess of 30,000 shares, with a low EV/FCF ratio under 15 (ie., the company is valued by EV at a maximum of 15 times free cash flow), and a long term debt/equity ratio of less than 1.0 (ie., long term debt below shareholders equity)...

    EV/FCF Stock Screener

    The screen results above (updated pre-open Tuesday 2nd June) show just 7 qualifying companies. The stock screener allows the results to be ranked (sort-ordered) by lowest EV/FCF. The qualifying companies at the time of writing, in order of lowest EV/FCF (the most potentially undervalued) are 1-800 Flowers (NASDAQ:FLWS), Liberty Tripadvisor (NASDAQ:LTRPA), Houghton Mifflin Harcourt (NASDAQ:HMHC), Scholastic Corp (NASDAQ:SCHL), Eros International (NYSE:EROS), Wolverine World Wide (NYSE:WWW), and Coach Inc (NYSE:COH).

    The stock screener is available 100% free (no sign up or log in is required), and includes multiple advanced fundamental metrics and ratios, to narrow down the universe of over 5,000 US listed stocks, by user-customizable filters, including price/EBITDA, price/tangible-book ratio, EV/EBITDA, EV/FCF, Altman Z-Score, Piotroski F-Score, return on invested capital (or ROIC), gross margin growth, operating margin growth, current ratio, etc., plus many popular technical analysis indicators, to further fine tune (subjective) entry/exit timing.

    It is important to add, the purpose of any stock screener is purely to narrow down many thousands of stocks, to a more practical shortlist of businesses which traders can then further study and analyze (the due diligence process) - the most critical part of this process is to discover (use news streams, and focused research articles on reputable, independently contributory sites such as seeking alpha) why a particular company may have such a low EV/FCF (or any other qualifying metric, such as a low Price/Book ratio, or EV/EBITDA). The stock screener is simply a value-added, time-saving tool, to cut down the noise into a practical watchlist of potential investing ideas.

    Best regards,

    Shiraz Lakhi

    Independent Investor & Founder: tradePilot.com

    Jun 02 4:46 AM | Link | Comment!
  • Technology Stocks With The Lowest EV/EBITDA Ratio, Trading UP Friday On Strong Volume...

    Stock Screen Of The Day - Pre-Open Monday 1st June 2015...

    The EV/EBITDA ratio enables investors to compare stocks (preferably in the same sector or industry) for potentially undervalued investing opportunities. The ratio, an advanced version of the more simplistic P/E ratio, is calculated as Enterprise Value (or EV), divided by the trailing 12 months earnings before interest, tax, depreciation and amortization (or EBITDA).

    Enterprise Value is a more complete measure of a company's value, often used as a more total valuation alternative to the market capitalization. Whereas the market capitalization is simply the company share price multiplied by the number of shares, EV is calculated as the market capitalization plus the debt, minus cash and cash equivalents. The EV is effectively the value a potential buyout investor would have to consider (the market capitalization plus debt, minus cash) in purchasing or takeover the company, hence serves as a true measure of the overall value of a business.

    EBITDA is earnings before interest, tax, depreciation and amortization. The EV/EBITDA ratio filter, available within the tradepilot stock screener, allow investors to efficiently shortlist those companies which appear relatively undervalued, for further study and analysis. Companies with a low EV/EBITDA ratio, combined with a strong balance sheet, and recent investor interest (price appreciation backed by strong volume) provide for a simple strategy to capture undervalued stocks currently on the move.

    The following stock screen looks for companies within the information technology sector, with a market capitalization above US $50 million, average daily volume traded in excess of 30,000 shares, trading positive in the most recent session, on above average volume, with a low EV/EBITDA ratio of less than 15, and a long-term debt/equity ratio of less than 1.0 (LT debt below shareholders equity)...

    Technology Stock Screener - June 1st 2015

    The results (updated pre-open Monday 1st June) show just five qualifying companies. These are Intel Corporation (NASDAQ:INTC), Kulicke & Soffa Industries (NASDAQ:KLIC), CTS Corp (NYSE:CTS), Teradata Corp (NYSE:TDC), and UNet 1 UEPS Technologies (NASDAQ:UEPS).

    The stock screener is available free (no sign up or log in is required, and the screener includes multiple advanced fundamental metrics and ratios, to narrow down the universe of US listed stocks, including price/EBITDA, price/tangible-book ratio, Altman Z-Score, Piotroski F-Score, ROIC, current ratio, plus the popular technical analysis indicators, to improve (subjective) entry/exit timing).

    It is important to note, the purpose of a stock screener is purely to narrow down the many thousands of stocks traded in a particular country or exchange, to a shortlist of businesses which one then needs to further study and analyze (the due diligence process), to discover 'why' a particular company may have such a low EV/EBITDA (or any other qualifying metric, such as a low Price/Book ratio, or EV/Free-Cash-Flow). The stock screener is simply a tool, to cut down the noise into a practical watchlist of potential investing ideas.

    Best regards,

    Shiraz

    Jun 01 8:29 AM | Link | Comment!
  • Value Investing In Technology Stocks With The Strongest Free Cash Flow Yields

    Value Investing: Technology Stocks with the Strongest Free Cash Flow Yields

    by Shiraz Lakhi

    One of the most successful self-directed investors I know, often makes the passing comment in times of uncertainty and market correction (paraphrasing): "despite the current market downturn, there is nothing fundamentally wrong with this company and the demand for its product or service - it's outlook - and this alone is what drives me to maintain objectivity, and deter panic/emotional decision making".

    It is simple truth that cuts through to what is essential in investing. A good business with consistent sales growth, a growing market, healthy profit margins, balance sheet, strong free cash flow yields relative to industry peers, and competent management (often including founding members) delivering year-on-year ROE growth, can get pulled down with the rest of the market due to macro fundamentals - the rest of the market undergoing a necessary pullback/correction. In such times, one of the best sectors I prefer to focus on is the technology sector, primarily because the sector by and large serves a global market, and (as a side-point) where demand may temporarily slow in one part of the world, but it is generally compensated by demand from emerging global markets and will likely continue to be so indefinitely.

    To identify quality businesses, my first point of call is a simple stock screen focused on the technology sector. This process extracts a shortlist of companies which I can then focus on and research further. Stock screeners allow investors to narrow down a universe of thousands of stocks into a handful of businesses one can focus on.

    In this weekly article (which I try to update every Tuesday), I will run through a simple, example stock screen which combines both fundamental 'qualitative' screening rules together with the price/free-cash-flow value ratio. The goal is to identify growth companies in the technology sector, providing strong free cash flow yields.

    Screening Rules:

    Selected Sector: Information Technology Sector

    Market Capitalization > $50 Million

    Average Volume > 30,000 Shares/Day

    Company Universe: US Listed Companies Only

    Sales Growth Current Quarter > Previous Year Quarter

    Operating Margin Current Quarter > Previous Year Quarter

    Price/Free-Cash-Flow (Price/FCF) Ratio < 15.0

    Liabilities/Assets Ratio < 1.0

    Results are ranked (sort-order) by lowest Price/FCF ratio first.

    Stock Screen Results:

    Pre-Open Tuesday 14th October 2014

    (click to enlarge)Price-to-Free-Cash-Flow-Stock-Screen

    As stated earlier, note that the screen results do not imply any investing or trading opportunity. Rather, the stock screener functions as a practical filter, narrowing down a database of thousands of stocks into a list of companies that meet a specific set of screening rules. Investors can focus on the top-most results, and apply further research, analysis, reasoning, and due diligence.

    The objective is to discover good businesses with strong fundamentals, and more critically, 'continuing' growth fundamentals (study of product/service, and the global market). It is a good bet, astute investors will discover companies which are fundamentally sound, and undergoing a temporary correction/pullback. In my view, these are businesses which represent the best opportunities to build up positions at a discounted (pullback) price...

    In the long run, as long as there are no structural/systemic issues within the business itself, the company is likely to continue growth and produce long term value creation.

    Investors/traders can view the latest stock screen at any time, based on the same rules above, or custom build their own screens...

    This includes multiple free stock screening filters, such as sales growth, gross/operating/net margin growth, return on assets, equity and capital (and QoQ/YoY growth in the same metrics), key value and balance-sheet ratios, including P/E, P/EBIT, Price/Free-Cash-Flow, Price/Book, and so forth. Price and volume based technical indicators (updated intraday) are also included.

    By Shiraz Lakhi

    Oct 14 5:42 AM | Link | Comment!
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