Buying small cap stocks on a value basis rather than trading momentum is
a more prudent investment.
We believe the Investorfile blog continues to offer a unique
perspective among the many newsletters promoting small/microcap investment
ideas by steering investors to acquire
growth stocks on a value basis rather than on a momentum basis.
Investors who buy a small cap stock based on its trading
momentum are engaged in a short-term trade which may or may not work out. They
often ignore the fundamentals and valuation of the stocks they buy which can
lead to heavy losses after the stock peaks. At this point the price of the
stock could take a long time to recover.
Although Investorfile’s Top Ideas are headlined as small
cap value stocks, they are still growth companies. When the Investorfile blog
initiates a new Top Idea we place close attention to fundamentals. We believe a
stock is undervalued based on EBITDA/Enterprise Value, Earnings per Share (EPS)
or revenue valuation metrics looking forward no more than 12 to18 months. We
also favour companies with very strong balance sheets and prudent Management
teams for long term growth.
Investorfile sets its accumulation price targets on the
initiation of our Top Ideas to specify an opportunity for investors to buy
shares in a company at attractive valuation levels and before the broader
investment market recognizes the stock's potential. Over the longer term, we
feel this approach provides the greatest upside and some downside risk to
We believe our stock price targets represent an opportunity
for investors to take advantage of the market's inefficiency from the
mispricing of selected growth stocks. Generally speaking, when our price targets
are exceeded, the Company’s operations are excelling and the broader investment
community has begun following and investing in the stock.
Our "accumulate to” targets
provide investors with a guideline to average their stock purchases under our
target price. By doing so, we feel the average cost base on the investment is
still low, which provides some margin of safety should the stock price
fluctuate from unexpected market conditions.
All that said because the market for growth stocks can be
very volatile, during down times investors who invested in small cap stocks on
a value basis are not feeling the same financial pain as investors who bought in on a
This article is for informational purposes only. This article is based on the
author's independent analysis and judgment and does not guarantee the
information's accuracy or completeness. The information contained in this
article is subject to change without notice, and the author assumes no
responsibility to update the information contained in this article. The
information contained within this article should not be construed as offering
of investment advice. Those seeking direct investment advice, should consult a
qualified, registered, investment professional. This is not a direct or implied
solicitation to buy or sell securities. Readers are advised to conduct their
own due diligence prior to considering buying or selling any stock.