In our fundamental analysis, we employ a bottom up, company by company approach where we focus on: The nature of a company’s business and the size and growth potential of the industry in which it participates, its competitive advantages, its ability to be a low cost producer, its marketing and sales capabilities, its attitude toward its customers and employees and its balance sheet and profitability.
When a company has practically unassailable competitive advantages they have high barriers to entry and very little competition. If management can constantly stay “paranoid” about the potential onset of competition and avoid complacency and maintain their drive to expand markets, lower costs, and develop new products and services, one may have a company that can go on for years as an outstanding long term investment. We strive to find companies in open ended, growing markets that have a proprietary edge, are gaining share and expanding margins. They should have the ability to generate minimum internal revenue growth of 15%. These companies tend to exhibit high returns on equity and invested capital without high levels of debt. We assess the company’s business model, the competitive landscape, and the abilities, commitment, and motivation of the company’s management. We place particular emphasis on trying to determine what is driving demand, why a company’s products and/or services are seeing an increase in demand, how much pricing control do they have and whether the revenue acceleration and earnings acceleration are sustainable. We also try actively to identify catalysts that will cause significant changes in market valuations. Examples of such catalysts and factors include: technological breakthroughs or obsolescence, new product introductions, new management or cost controls, implementation of performance-based compensation plans, restructurings, acquisitions or divestitures, share repurchases, legislative or other legal developments relating to a company’s business or industry, new financings, new analyst or brokerage coverage, restatements of earnings, and changes in accounting methods.
We integrate traditional Wall Street research with extensive “grass roots” research from an information network that is a valuable resource we have developed over our 25+ year involvement with companies across the market cap range.