We get lots of emails asking about the simplest way to set up and manage a deep value stock portfolio like mine, which I’m currently building (see below). To tell you the truth it’s really easy!
Here at The Acquirer’s Multiple we provide three deep value stock screens. We use The Acquirer’s Multiple® to select the stocks for our screens. The Acquirer’s Multiple® is calculated as:
Enterprise Value / Operating Earnings*
*The Acquirer’s Multiple® is different to EBIT and EBITDA as our operating earnings figure is constructed from the top of the income statement down. Calculating operating earnings from the top down standardizes the metric, making a comparison across companies, industries and sectors possible, and, by excluding special items–earnings that a company does not expect to recur in future years–ensures that these earnings are related only to operations.
The Acquirer’s Multiple® was born out of the research conducted by Tobias Carlisle in his Amazon best-seller Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations which describes how companies with a low rank based on The Acquirer’s Multiple® may be undervalued.