Teses - Small and Profitables - Avenue Securities

21/09/2020 <h1> SMALL AND PROFITABLES </h1> Although the American stock market is one of the largest globally and has more than 3,000 assets available for investment, many are restricted to large and better-known companies. To demonstrate that there are several investment alternatives, we have listed here 11 smaller and lesser-known companies, but which have presented good returns to their shareholders in recent years. What metrics were used? • We are talking about companies with a market value between $2 to $10 billion, a far cry from companies like Apple, worth $2 trillion, or companies like Walmart with $400 billion market value. • Besides, in this listing, we looked for companies that had a history with consistent numbers of revenues and profits. Another critical point we sought was to analyze the profitability of these companies. As such, the 11 companies have a high 2-digit Return on Equity (ROE). For those who do not know what ROE is, it serves as a measure to understand how efficient a company is in "profit generation," that is, how profitable it can be. The higher the return on equity, the more efficient this company is in its operations. • We look for financially healthy companies. It is useless for the company to be profitable, but to have several obligations that can complicate its future results. Therefore, the list of companies considers a net debt/ EBITDA limit below 3.5x, which we feel it's healthy and manageable. Those unfamiliar with the net debt/EBITDA ratio are a company's net debt (gross debt less than it has cash and cash equivalents) and Profit Before Taxes, Taxes, Depreciation and Amortization (which would be something close to a company's operating cash flow). Thus, by dividing the net debt by EBITDA, we arrive at an indicator that tells the investor about its leverage. The lower this debt ratio, the better for the company. DISCLAIMERS: This is not a watertight list. That is, there may be more companies with this profile. It is also important to remember that the company's life is dynamic and that the numbers and realities presented here tend to change over time. Finally, it is worth remembering that companies' past profitability does not guarantee that these returns will continue to happen in the future.