Connect with us

Markets

29 Things to Look For in a Microcap Stock

Published

on

29 Things to Look For in a Microcap Stock

29 Things to Look For in a Microcap Stock

Today’s infographic corresponds with the Howard Group’s Opportunity Knocks Challenge, which we are proud to sponsor. In this free challenge, investors can pick a portfolio of stocks from the public companies they represent – with play money of course. The investor with the best performing portfolio wins the trip of a lifetime valued between $11,000 and $15,000.

There are some incredible trips available:

  • Head to Pamplona to literally run with the bulls
  • Race Ferraris and Lambos in Vegas
  • Visit exotic Vietnam and Cambodia for a river cruise
  • Take a bite of a the Big Apple with a big shopping spree
  • Hit the famous Wailea Golf Club in Maui for a few rounds

Definitely consider registering for this free contest today. We want to see a Visual Capitalist reader as the winner!

The Microcap Opportunity

We worked with Howard Group to come up with 29 points to consider when looking at investing in a microcap stock. The key here is due diligence. Good research can help you mitigate the risks that these stocks have.

Benefits of microcaps:

  • Higher potential returns
  • Small companies outperform big companies over time
  • Valuation disconnect
  • Lack of visibility = higher arbitrage
  • Nimble companies and boards
  • M&A potential

Downsides of microcaps:

  • Higher risk
  • Less analyst coverage = less due diligence by market
  • Less trading volume

Investors who do strong due diligence can mitigate the downsides to trading microcaps and can reap big gains.

Due Diligence Checklist

The People

Good people behind a company make a difference – especially for small companies that have big growth potential.

Here are the key things to look for:

  • A proven track record in building successful businesses
  • A well-established network of connections and ability to nurture strategic relations
  • Ability to raise capital in a tough economic environment
  • Skin in the game: ownership of shares of the company represents real stake
  • Management that is respectful of shareholder funds: not spending excessive money on General and Administrative (G&A) expenses or overpaying themselves

Pro tip: Review annual Information Circular for excessive levels of management compensation or director’s fees, insider shareholdings, any past bankruptcies, and other Boards that senior officers serve on or previously sat as a director.

Capital Structure

The structure of microcaps can tell a story on its own. Here is what to look for:

  • The percentage of holdings of retail vs institutional investors, as well as insiders
  • How many shares are outstanding and fully diluted
  • The expiry dates and strike prices of warrants

Pro Tip: Look at previous financings. Was each subsequent financing done at a higher level than the last? Or does the company have a history of dilution?

The Numbers

The numbers are the meat and potatoes of this checklist. Look at:

  • Working capital
  • Quarterly expenses with special attention to G&A
  • Debt – repayment schedule and interest rates
  • Generating free cash flow, or the potential to do so in the near future
  • Ability to maintain profitable margins

Pro Tip: Are revenues based on the one-time sale of a product or is there a strong recurring revenue model?

Differentiators and Catalysts

Does the company have an advantage over competitors? What catalysts are on the horizon that could potential impact share price?

  • What sets the company apart from its peers?
    • Product features, attributes and benefits
    • Service features, attributes and benefits
    • The company’s client list
  • Visibility on events or milestones that will bring significant shareholder value

Pro Tip: Look at management’s past performance to see if they have done what they said they’d do. Have they met the timelines and objectives previously stated?

Valuation:

Relative to the market, is this company fairly valued? Check out:

  • For a revenue producing company: how much future potential is built into the stock price versus the fundamental financial situation.
  • For a non-revenue producing company: how much potential is built into the ultimate value of the asset and its economic viability

Tricks of the Trade:

Don’t bite off more than you can chew. Could you sell your holdings within three trading days without incurring a loss greater than 10%?

Keep an eye on the insiders. Insiders know the internal workings of the company and buying or selling could be a signal.

Watch the stock like a hawk. A sudden price drop could indicate a pending financing or negative news.

Analyze the analysts. Watch what the analysts are saying and if their opinions are shifting.

Continue Reading
Comments

Markets

40 Stock Market Terms That Every Beginner Should Know

Getting a grasp on the market can be a daunting task for new investors, but this infographic is an easy first step to help in understanding stock market terms.

Published

on

40 Stock Market Terms That Every Beginner Should Know

Understanding the stock market can be a daunting task for any new investor.

Not only are there many concepts and technical terms to decipher, but nearly everybody will try to give you conflicting pieces of advice.

For example, if a stock in your portfolio falls in price, should you be accumulating additional shares at a lower price or should you be strategically cutting your losses?

Some experts will tell you one thing, while others will tell you precisely the opposite.

A Place to Start: Terminology

Before you drift into the many debates that the investing pundits are weighing in on, perhaps the most proactive step for a beginner is to simply learn to talk the same language as the pros.

Today’s infographic comes to us from StocksToTrade.com, and it covers the most important stock market terms that every new investor should know and understand. It’s enough to get any beginner on the same playing field, so they can start toying with the more nuanced or complex concepts in the investing universe.

While we don’t agree with the exact definitions of all of the terms, the list is adequate enough to get any new investor off the ground. It covers basic order terms like “bid”, “ask”, and “volume”, but it also goes into concepts like “authorized shares”, “secondary offerings”, “yield”, and a security’s “moving average”.

What’s Next?

Already got a handle on 40 of the most important stock market terms?

Visual Capitalist has a ton of other powerful visual resources for new investors, or anyone else hungry to learn about how markets work:

Crush the above resources, and you’ll be market savvy in no time!

Subscribe to Visual Capitalist

Thank you!
Given email address is already subscribed, thank you!
Please provide a valid email address.
Please complete the CAPTCHA.
Oops. Something went wrong. Please try again later.

Continue Reading

Gold

A Brief History of Jewelry Through the Ages

Jewelry has been coveted for centuries by many different cultures. Here’s a look at the history of jewelry, and how it’s evolved into a $348B industry.

Published

on

Jewelry has been an integral aspect of human civilization for centuries, but it was the discovery and subsequent spread of precious metals and gemstones which really changed the game.

In today’s infographic from Menē, we visualize how the uses and symbolism of jewelry have evolved across time and space to become the industry we’re familiar with today.

Antique, Yet Ageless

There isn’t a single corner of the world that’s untouched by the influence of jewelry.

  • Ancient Egypt
    Gold accompanied the affluent into the afterlife – the famous 1922 discovery of King Tutankhamun’s tomb was filled to the brim with gold jewelry.
  • Ancient Greece and Rome
    Jewelry was used practically, and as a protection against evil. The gold olive wreath design was highly popular during this time.
  • Mesopotamia
    Both men and women in the Sumer civilization wore intricate pieces of jewelry, incorporating bright gems like agate, jasper, or lapis lazuli.
  • Meso-America
    The aristocracy in Aztec culture wore gold jewelry with gemstones to demonstrate their rank. The jewelry also doubled up as godly sacrifices.
  • Ancient India
    The Mughal Empire introduced the combination of gemstones with gold and silver. Today, pure gold jewelry is often gifted to new brides for financial security.
  • Ancient China
    Both rich and poor wore jade jewelry for its durable and protective properties. Pure gold jewelry is making a fashion comeback, doubling as a form of investment.

Modern Jewelry: At a Crossroads

Today, jewelry is at once the very same and vastly different from what it used to be.

The industry is worth upwards of $348 billion per year, and it’s not hard to see why. As an alternative asset, jewelry has grown 138% in value over the last decade – only outperformed by classic cars, rare coins, and fine wine.

However, perceptions of jewelry vastly differ. It’s not a stretch to say that Western jewelry buyers are enamored with diamonds, given their enduring association with special occasions – but it’s interesting to note how that ideal was fabricated.

The Invention of Diamonds

The De Beers Group is well known for making diamonds great again. In the early 1900s, the company had already monopolized the diamond trade and stabilized the market, but they faced the challenge of marketing diamonds to consumers at all income levels.

The average American considered diamonds an extravagance, preferring to spend money on cars and appliances instead. The concept of engagement rings existed, but weren’t widely adopted. The #1 slogan of the century – “A Diamond is Forever” – transformed all that.

Even as more companies like Tiffany and Co and Cartier entered the playing field, De Beers had set a successful industry standard. But there’s a catch – diamonds are actually:

  • Not all that rare in nature
  • Intrinsically low in value
  • Easily replicated in a lab
  • Decreasing in sales

Despite these caveats, the popularity of diamonds illustrate how Western consumers do not approach jewelry in the same way as Eastern economies, where its function as a store of wealth persists.

The Eastern Gold Standard

In Eastern economies, jewelry often takes the form of pure gold. The reasons behind this difference are surprisingly pragmatic: gold is considered a secure and innate store of wealth that maintains its purchasing value over decades, allowing families to pass wealth from generation to generation.

The rich history of the precious metal has made it a sought-after commodity for centuries, and China and India drive more than half of global gold jewelry demand every year:

YearShare of Demand (India + China)Total Global Jewelry Demand (tonnes)
201457%2510 tonnes
201558%2426 tonnes
201655%2068 tonnes
201757%2201 tonnes
201858%2200 tonnes

Source: Gold Hub – Values have been rounded up to the nearest tonne.

Why are Eastern cultures so attracted to the properties of pure gold?

Part 2 of this series will show why gold is the world’s most incredible metal, and why it’s coveted by billions of people.

Subscribe to Visual Capitalist

Thank you!
Given email address is already subscribed, thank you!
Please provide a valid email address.
Please complete the CAPTCHA.
Oops. Something went wrong. Please try again later.

Continue Reading
Foran Mining Company Spotlight

Subscribe

Join the 100,000+ subscribers who receive our daily email

Thank you!
Given email address is already subscribed, thank you!
Please provide a valid email address.
Please complete the CAPTCHA.
Oops. Something went wrong. Please try again later.

Popular