Introduction
The Margin of Safety screen focuses on the valuation and safety of investment. The Margin of Safety in this screen is calculated based on the Discounted Cash Flow analysis and then compared to the End of the Day price of the stock to determine the margin of safety.
In this screen we took the top 10 results.
Screen Details
This stock screen looks for mid cap stocks between $2 billion and $5 billion in market capitalization with good valuation and margin of safety.
- Margin of Safety (DCF) in Top 10
The Screen Results
Stock | Company | Margin of safety | Fair Value | Weighted average cost of capital | forward ebitda growth | terminal growth rate |
|---|---|---|---|---|---|---|
CWEN | Clearway Energy | 50% | $38.71 | 4.6% | 10.7% | 2.7% |
EXPI | eXp World Holdings | 40% | $35.82 | 14.0% | 2.2% | 2.2% |
HAE | Haemonetics | 141% | $121.97 | 7.1% | 2.2% | 2.2% |
IRBT | iRobot | 36% | $129.67 | 6.6% | 2.7% | 2.7% |
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Notes and Observations
The nature of the screen generally means that I will be investigating each and every of these stocks further. IRBT and HAE are of special interest as CWEN and EXPI appear to be financially less solid. Most of these stocks fall into the pattern of classic value stocks - they have all had declines in the stock price recently due to issues that may be temporary in nature. They also tend to have high short ratios as short term traders and quick profit seekers follow the trend downwards. In these cases the investor needs to decide whether the long term outlook is materially different than the short term prognosis.
The margin of safety and fair value calculations will depend on the terminal growth rates and forward EBITDA growth estimates. However, once the screen is run, you really need to dig deeper in the company and understand the drivers of value, and build a defensible thesis on why you think this value will be realized in the near future (viz. a catalyst should exist).