How to Spot Long-Term Value in Overlooked Small Cap Stocks

During their recent episode, Taylor, Carlisle, and Ashton discussed How to Spot Long-Term Value in Overlooked Small Cap Stocks, here’s an excerpt from the episode:

Zeke: Yeah. There’s quite a few stocks that we’re growing pretty quickly. I think it’s still very difficult for many companies to know what the true demand is for their services and what the true costs are for providing those services, particularly with physical things and what’s happened with the supply chain. So, it is very difficult to project out what some companies are going to do for the next 12 months to 24 months. And that’s created a lot of uncertainty. And so, those are the areas we’re looking at.

And then, as I mentioned, the small cap areas, we’re actually finding very good businesses trading at single digit multiples to free cash flow. I’m not talking about super capital intensive, commodity-based businesses. I’m just talking about little businesses that have a reason to exist. My friends who are playing in the high-quality game would certainly not want to own them. But my view is if a business has been around for a long time and it truly deserves to exist, somebody’s got to own it. When nobody wants to own it, you might get a chance to buy it at a decent price. So, I certainly am happy to own a mediocre business if I’m getting a really good value on it.

I will say one other thing that’s interesting. If you go look back at all the companies that Berkshire Hathaway has acquired, what you’ll find is that they’re not all the world’s best businesses. They’re just good businesses that were run by owner operators that really, really had a good reason to exist. And people wanted the product and they generated good cash flow over time. Warren Buffett, of course, bought them at very good prices. That’s the lesson that we take away from that.

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