Value Investor Daily #41

Value Screen of the Week

September 23, 2024

In partnership with

Quickly identify market opportunities w/ the #1 A.I. for asset selection.

Here’s a quick and straightforward value screen to start your week.

We used just two criteria to find cheap, cash-flow-positive, capital-efficient companies:

  1. Price to free cash flow ratio (P/FCF) under 5

  2. Return on capital over 15%

Here are a couple of ideas from it.

International Money Express, Inc. (IMXI) appeared on the screen. The Miami-based remittance services company has grown revenue year-over-year for the last 26 quarters and trades for just 4.3X cash flow.

Petrobras (PBR) also showed up. The Brazilian oil operator pays irregular dividends, yielding over 14% in the last year. It trades at 3.4X cash flow.

Of course, these could be value traps. Proceed with caution when using value screeners.

Always look beyond basic valuation metrics before pulling the trigger.

Even though, as in the case of PBR, a company could have billions of dollars of cash flow and pay a hefty dividend, its fundamental business could have been deteriorating or flat for the last ten-plus years.

You might still invest for that dividend or solely based on the valuation but know what you’re getting into first.

Look for red flags to quickly eliminate problematic companies whenever you sift through a new screen full of cheap stocks. The market is usually right; they’re cheap for a reason.

Here are some rapid-fire questions to keep top of mind:

  • What’s the financial health of the company?

  • Is debt increasing or decreasing? Can it handle its current debt obligations? What if interest rates rise?

  • Is the dividend sustainable?

  • How does the company treat shareholders? How is it returning or reinvesting capital? Is the share count declining over time?

  • Are margins sufficient and stable?

  • Is the return on capital stable, or does it require ever-increasing debt levels to yield the same returns?

  • What’s happening to revenues? Is there organic growth in the business?

  • What are the political risks? Wherever it does business, can the government change how the company operates or pays out returns to shareholders?

  • What is the company’s competitive advantage? Does it have a moat? Can it defend its market position?

  • What are the industry dynamics? Who are the competitors in the space?

  • What if this goes wrong? What’s the smallest position I can take on this bet? How and when would I exit the position if the moat no longer stands?

As always, do your own homework and decide for yourself.

Feel free to play around with the screener yourself and see what ideas you come up with.

Thanks for reading today!

Quickly identify market opportunities w/ the #1 A.I. for asset selection.