“We are what we repeatedly do. Excellence, then, is not an act, but a habit.” – Aristotle
Research Analysis
After we identify a host of high quality businesses, we intensively research and evaluate financial statements and valuation metrics in the appraisal process of each company. We look for companies that sell their products and services for reasons other than price (not a commodity business). Normalized earnings are meaningful to us rather than trailing P/E’s which can be misleading as indicators of value. This has a high level of relative importance in our analysis. In addition, we look at measures such as cash flow return on invested capital (CFROIC), and seek to understand how well a company generates cash flow relative to the capital it has invested in its business.
We find enterprise value to EBITDA, and price to sales, which are typically less subject to potential manipulation than reported earnings, can provide meaningful information about a company. Overall, businesses we seek to identify will exhibit:
• Solid balance sheet
• Management strength with interests aligned with shareholder value
• Clear competitive advantages
• Five-year operating history
Being a nimble firm with a close knit focused investment team allows us to act on opportunities as they arise. By understanding the quality of a business with current price primarily a backdrop, we determine if the company is a worthwhile candidate for further research and potential ownership.
