Hello you very intelligent and wonderful individuals that make up this forum, i sincerely hope you are doing well.
I kindly wondered please i know Small Cap Stocks are more risky but if you do the correct due diligence they can be very rewarding. I kindly wondered when initially reviewing the company financials what do you put most emphasis on please for a good company? For instance do you look for no debt, high free cash flow, what factors are important for increasing your chances of success in an investment please? If anyone kindly had any thoughts on this i would be forever grateful and thankful for your support with this.
Sending you lots of good wishes and i truly hope you continue to do amazing with your investing. All the best.
Hi. The first and most critical thing that I look at is whether they are going to need to raise money. If they do then the share price will probably get trashed - often just after they have released good news to get private investors buying in.
Route to profitability, timescales for commercialisation (ie mining results, trial results for pharma, development timescales for tech) are also extremely important. Basically even for the best companies the share price will often just gradually weaken over long periods with no news, no income… when investors get fed up with seeing a share doing nothing. However, sell and it is almost a guarantee that the price will double the following week.
I’ve learnt at my cost, don’t sit on a share where the chart is telling you sell with a clear downtrend and yet the research of the fundamentals says that it should be brilliant. More often than not those that know more are selling and there’s a problem (in the case of DME which caught me out they didn’t have all of the permits for the mining)
Basically until a company is profitable and has free cash flow there will be perennial problems that hit the share price - need to raise funds, great results but profitability pushed back, doubt on timescales…
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I would check out the same as any other stock - run a peer group analysis.
Cash burn / runway, revenue growth and good expense management are other factors.
Then I go ahead and buy some stupid stocks with poor management with over inflated salaries where their own and investor interests may not be well aligned.
One I trade in and out of (not on 212) is MTI Wireless Edge (MWE). It has a large insider ownership, consistent results yet as a microcap doesn’t seem to attract much outside interest.
I’m also monitoring FIPP now its on my radar, but I suspect some pull back so eagerly waiting.