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.
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.