Thread by @SharpTushar1

✨Micro-Cap Investing Simplified ✨

A thread ⬇️

This is the ultimate filter for screening high quality micro-cap stocks.

Note- There is no single way to find potential
multi-bagger micro caps.

My process is based on Principle of Inversion.
To find great stocks we have to remove the bad stocks.

Market Capitalization > 200 AND
Market Capitalization < 1000 AND
Debt < Debt preceding year AND
OPM > OPM 5Year AND
Return on equity > Average return on equity 3Years AND
Profit growth 3Years > 15 AND
Altman Z Score > 3 AND
Return on capital employed > 15 AND
OPM > 15

Now let's decode those filters.

Market-Capitalization

Firstly Micro-Caps are those companies that fall below the 1000 crore bracket.

Now to reduce the risk in the already risky game, I have screened stocks only above 200 crore market cap.

Market Cap >200 and
Market Cap < 1000

De-Leveraging ⬇️

Lets filter out the companies that are reducing debt.

Debt < Debt Preceding Year
De-Leveraging is also a key trigger for re-rating.

Margin-Expansion 💵

Another key trigger is Margin Expansion

OPM > Average OPM 5year

Efficiency Ratio ✨

Return on Equity > Average Return on Equity 3 years

A increasing RoE in long term tells us a lot about the Management.

Return on Capital Employed > 15

A high and increasing RoCE over a long-term chart indicates that the business has a MOAT.

Margins 💵💵

Further filter out using this ⬇️
OPM > 15 .

Altman Z Score ✨

Helps in avoiding companies that have stress upon their balance sheet or those that are on the verge of bankruptcy.

An Underrated Tool.

Altman Z Score > 3

Profitability 💵✅

Profits should be on an increasing uptrend.
This will help us identify the companies that are enjoying tailwinds.

Profit Growth 3 years > 15

This is the final screen.

Market Cap > 200 AND
Market Cap < 1000 AND
Debt < Debt preceding year AND
OPM > OPM 5Year AND
Return on equity > Average return on equity 3Years AND
Profit growth 3Years > 15 AND
Altman Z Score > 3 AND
Return on capital employed > 15 AND
OPM > 15

You can further filter down by adding technical science to this.

Filter out stocks that are above 50 DMA.

Current Price > 50 DMA

Here are the results. 😇

Personally Tracking

Gulshan Polyols
Pix Transmission
RPG Life
Jash Engineering
Axtel Industries
RACL GearTech

#Kopran was also a part of this filter until recently when it's market cap crossed 1000 cr.

Thanks @unseenvalue & @punitbansal14 for highlighting the unseen in Kopran

This screener has given us 15 High Quality Stocks.

Now we shall carry the guard from here and study each business individually.

Look for business that operate in a specific niche or those which have a huge opportunity size.

Learn the art of science and science of art.

Please Re-Tweet this thread if you find this useful and follow my account for more such value-added threads.

@SharpTushar1

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