Mike...
I'm doing two things. First, I'm checking my list. What I'm looking for is a (G&K) company that is making sales gains, or sure looks like it damn sure will. I don't want to buy into some outfit just because payroll cuts have allowed them to turn a profit or maintain their margin. That may be a prudent business decision, but it's not growth.
Most troubling is pinning down market share, which I want to to see increasing, even if the sales have not been growing. If I see more dollars going more quickly into company A than they are going into company B, that may have to do. Sales in an otherwise solid candidate may not be recovering, in which case I want the candidate to have a flatter curve. A company like this will probably be depressed longer, so it can be purchased later.
I also want to see, in the financials, that R&D is not being slashed. I'll use a % of revenue to determine this, as in dollars, it may very well have been. I'd rather see the cuts come from G&A. I don't want to see revenue gains from sales of stock investments...I want them to come from ongoing operations.
These are qualititive considerations.
As to price, I'll focus on the P/S ratio and the price beta.
I'm not going to demand a P/S under 1.0, but if the beta is high I might. I'd be happy with 1.0 to 1.25, and this time around I won't kick myself if it goes lower.
I'll know that I've picked a good company, at a pretty good price, and 12 months from the purchase date, I don't expect to remember that I could have gotten a dollar or two less.
Mike, I'd be delighted if you would add or subtract to this. My purpose is to keep it simple, and I know it's not perfect. Your comments would help many I am sure.
Chaz |
