(If you find the notes below difficult to follow, the video will help).
This is the first of a series of daily posts on companies with particularly interesting financial statement characteristics — characteristics that have typified what we call SuperGrowth MultiBaggers, or companies that appear capable of generating shareholder returns of 100 to 1 over a ten year period. These company share several important characteristics including:
- Rapid revenue growth.
- Expanding margins.
- A reasonable price in relation to free cash flow, which offers the opportunity for multiple expansion.
- The ability to achieve substantial growth without adding debt. That’s difficult and rare. Growth generally requires investment in the future — investment in inventory, plant and equipment, receivables, the training of new people — investment that takes times to pay off. Only companies with particularly strong competitive positions and management can pull it off.
We try to know as much as we can about a company’s current profitability and financial strength. We don’t predict earnings, the future, etc. We don’t publish research that says anything resembling, “Company XYZ may not be much this year, but just wait ’till next.” There are enough others doing that already. We do however time purchases and sales based on an artificial intelligence pattern recognition software that buys on weakness and sells on strength. Due to the recent strong market, we’ve liquidated most of our portfolio over the last week and are now just under 73% in cash.
Market risk assessment:
- High, New Purchases 4% Of Cash Position.
- SPY currently trading at $411.64. Indicated BuyAt $375.98 (8.7% below current market), SellAt $426.16 (3.5% above current market).
- Calculation based on proximity of current price to the Algo-indicated BuyAt and SellAt prices of the S&P 500 and the fifty fastest-growing, low-debt, highly profitable companies trading on US exchanges.
- Click on images to expand.
SuperGrowth MultiBagger Farm Team Up And Comer: Freedom Holding Corp (FRHC)
Our selection for today, Freedom Holding Corp. (FRHC), a company on our “Farm Team” list. It’s not quite a SuperGrowth MultiBagger — it’s free cash flow is not yet reliable enough — but it is close and appears to have huge potential.
Freedom Holding Corp. is a fast-growing broker operating in Russia and Central Asia. It has developed a niche by allowing its customers the opportunity to participate in US IPOs. It also owns a commercial bank, Freedom Finance Bank, saving their customers fees and inconvenience when moving money around. As mentioned earlier, we don’t research the intangibles of the companies we invest in. Our unique contribution is the ability to analyze the financial statements of every public company in a comprehensive and time-effective way, and concentrate on those that appear most promising from a risk/reward point of view. For the backstory, we rely on particularly well-researched articles by analysts who seem to know what they are talking about. Here’s a good Seeking Alpha article on Freedom:
Read carefully, financial statements are highly revealing. Each of our reports is 11 pages in length. Here’s the page on Growth and Growth Momentum. Note the revenue growth and recent dramatic free cash flow growth indicating ability of scale. Note also that growth is accelerating.
I’d like to particularly draw your attention to the lower left quadrant of that growth analysis.
Below, what we call the Summary Report. The company appears to be coming alive after a period of adversity and mediocrity. The middle graph, financial strength, is particularly important and meaningful. Long term debt is minimal. Two year leverage trends highly favorable.
Finally, the conclusion of our buy on weakness, sell on strength pattern recognition software. Based on the patterns it sees, it indicates a BuyAt price of $281.65, 12.7% below the current market of $322. Because we follow so many companies, we can wait for unusual opportunity in exceptional companies. We’re liquid enough to take advantage when such an opportunity presents itself.
It is important to note that the Algo updates every few minutes throughout the day based in part on volatility. Higher volatility means and the bid drops, lower volatility and the Algo will pay more.
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