Margin of Safety

Screen Details

This stock screen looks for small cap stocks between $30 million and $2 billion in market capitalization with good valuation and margin of safety. 

  • Margin of Safety (DCF)  in Top 25

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Notes and Observations

The nature of the screen means that I will be investigating each and every of these stocks further. Most of these stocks fall into  the pattern of classic value stocks – they have all had declines in the stock price recently due to issues that may be temporary in nature. They also tend to have high short ratios as short term traders and quick profit seekers follow the trend downwards. In these cases the investor needs to decide whether the long term outlook is materially different than the short term prognosis. 

The margin of safety and fair value calculations will depend on the terminal growth rates and forward EBITDA growth estimates. However, once the  screen is run, you really need to dig deeper in the company and understand the drivers of value, and build a defensible thesis on why you think this value will be realized in the near future (viz. a catalyst should exist). Please note that the Margin of Safety % calculation in the table above uses the current price as the denominator, not the fair value. If you prefer the other way around, this is an easy adjustment you can make.

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