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A Johnson & Johnson like company in the micro cap space: is it possible?

February 07, 2011 | About:

I don't know how and when I gave the first look at this company but it happens that sometimes the best stocks (I hope this could be one!) comes by chance.

Today I want to talk about MOCON, Inc. (NASDAQ:MOCO), a very small cap company with a market cap of less than 70 mln $ at the beginning of February 2011.

Lately I think to have improved my framework in analyzing stocks just by checking past history, at least 10 year of history. In succession I will detail each metric I think has an importance in valuing stocks.

1) Free cash flow yield:

In this case what I see looking at the last 10 years is something that is typical of one of the best managed company in the world: it is a very stable line with FCFY ranging between a minimum of 2.7% and a maximum of 11.6%, with a 'median' of 6.7% and the current value at 6% (the last 12 months fcf is 3.9 mln $, divided by 66 mln $ of market cap at Feb 7 2011).

2) Debt to equity: I prefer giving a look at companies with very low debt because this can give them more time in case of bad events.

MOCO ha no debt at all and has never had debt in this 10 year history.

3) EV / EBIT:

In this case the lower the better and I see that it has ranged between 5.8 and 14.5, with a 'median' of 9.9 and the current value at 11.

4) Cashflow to sales: MOCON, Inc. generates around 16.8% of cash tipically (the median value in ten years) and the range has been between 7.2% and 23.8%. Now is at 17.6%.

5) Price to book: it's now at 2.5 and the median has been 2.6 in a very stable range between 1.6 and 3.6.

6) Return on equity: median at 15.7, now at 15.8 (!) and a 10 year range between 10.7 and 22.6

7) Operating income growth trailing 12 months: median at 4, now at 48.7 and a 10 year range between -36.9 and 58.9.

8) EV to sales: median at 1.7, now at 2 and a 10 year range between 1.1 and 2.6.

Lastly, I usually check

9) the historical number of shares outstanding, where I see there is a well managed use of share buybacks (the number has increased until the mid '09 when they have begun a huge buy-back activity probably at the very bottom of the stock valuation!) and, then, consequently;

10) the free cash flow per share numbers, where I see no yearly negative per share data and the recently high in Q3 '09 and Q4 '09.

Last, but not least,

11) the dividend yield is at 3.03%, with a track record of increasing it at a 5% rate.

Is it enough to press the BUY botton? Probably not, but it deserve a space in my universe of good quality stock because in case Mr. Market put it in the higher range of FCFY maybe is the case to research more, mainly going to the SEC site.

Disclosure: I have no position in this stock

About the author:

Rating: 2.9/5 (13 votes)


Evgeny Garanin
Evgeny Garanin - 6 years ago    Report SPAM
There is a one question. what do they sell?
Cor7997 - 6 years ago    Report SPAM
Hi Evgeny,

the objective of this post (probably superficial) was only to highlight a kind of 'top down' process to filter a company with good fundamentals: the Sec link was my attempt to address this very important question. Anyway I found inside gurufocus a more detailed qualitative analysis of the business: you can go to Mr. De Rosa's post here.

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