1-foot hurdles: 192 companies with an FCF yield > 100%

Now that's a PE of 1

In 1955, after browsing through many items in the Moody’s manual, Buffett found an insurance company trading at a PE of 1.

This is a typical setup for what he called his 1-foot hurdles. Companies that provide a huge margin of safety. No-brainers. No complexity. 

Simple.

2 weeks ago, during a conference I gave, I asked the audience how many companies they had found trading at a PE of 1. They rolled their eyes of course. None.

So I wanted to do the test, using a screener: Are there companies trading at a trailing PE of 1? 

But we know from a previous post, a P/E ratio is not the best one to use. There are several flaws. Better would be to use the EV/FCF ratio.

An EV/FCF ratio of 1 would come down to an FCF yield of 100%.

Let’s put it into a screener and see what it unravels. I had to remove anything finance- related though as it would skew the FCF number.

Intermezzo: I believe there is an order to things. First you try to understand the company and its business model, markets etc. Only at the end do we look at valuation, as the understanding of the company will influence HOW we value the company. By using a screener we’re doing it the other way around.

Do you think using a screener like this is useful? 

I do not want to be too stringent, but I did add 2 additional criteria:

1. The company has to have grown profits over the last 3 years

2. The market cap has to be 1M USD at the least

Finchat.io gives us a hunting ground of 192 companies worldwide. Now when I say worldwide, I truly mean worldwide:

Data from finchat screener

 54 countries, some examples:

• The Russian Federation

• Zimbabwe

• Pakistan

In other words, it will be difficult to take a position in a lot of these companies.

Let’s also take a look at the market cap:

Data by market cap

This is the land of the small, the tiny, the quantum realm.

It’s time to look at some of them, you can download the full list here:

High Fcf 192

62.2KB ∙ XLSX file

Download

Download

Let’s take a look at 2 companies that might seem interesting for a deeper dive.

The first one that grabs my attention is an industrial manufacturer of electrical equipment in Peru. Especially because I know the parent company: Nexans (which is traded on the Paris Stock Exchange).

Industrias del Cobre Sociedad Anónima (Ticker: BVL-INDECOI1)

It looks great at first glance:

1. ROIC > 30%

2. Negative net debt

3. Great interest coverage

4. Low double digit growth in revenue

5. Increase earnings per share growth

Annotated overview of Finchat.io

The problem?

• Average daily volume traded: 6,000 USD

• Impossible to buy it through my brokers

If you know how to buy this one, please let me know!

Nanocotech (Ticker: NANO)

This company has been around since 2001. It is a material science company . They do R&D, scale up and manufacture semiconductor nanoparticles. They have an extensive patent and IP portfolio. Nano produces Quantum Dots, these are nano-scale sized emitters of light that can be used in displays (like those produced by Samsung).

From company presentation

Their historical financials don’t look that great:

1. Gross margins are high, but difficulty generating profits

2. Average ROIC is a disaster (but current sits at 1%)

3. Low P/FCF

4. Negative net debt

5. Rapid revenue growth

So what happened?

Apparently, they were in a litigation with Samsung (which they won) and they received 50 Million pounds in proceeds (which explains the boost in FCF).  Besides this one-off event, their financials for H1 of 2024 were a lot better than the year before (they made a profit).

They plan to return some of the cash to shareholders through a tender offer at a price 25% above the market price. They will also do some buybacks:

They estimate a cash balance of 20M GBP at the end of the year and a strong IP portfolio to drive future growth.

Then on the 20th of November, the company issued a statement that it will commence restructuring to reduce cash burn and focus on commercial activities.

I’ll follow this from afar, but it seems the company is facing severe headwinds…

Summary

This was a quick run-through of 2 companies to see if there’s anything actionable.

Let me know if you find anything interesting within the list. 

May the markets be with you, always!

Kevin