Tips & Ideas 

Genuine value small caps

Genuine value small caps

About this time last year, I became a bit obsessed with attempting to find a valuation ratio that took a multi-faceted view on the question of 'value'. I alighted on what I have called a 'genuine value' ratio (admittedly a rather portentous choice of name for what is effectively a souped-up PEG ratio) that attempts to factor in earnings growth, dividends, debt and cash, as well as the multiple of earnings investors are being asked to pay. Several of the one-year-old screens that I have recently updated incorporate this ratio. Gratifyingly, though it is very early days, my obsession with this approach to value has produced some great returns. The latest case in point is the Genuine Value Small Cap screen I ran in late May last year. The 21 stocks the screen selected produced a stunning total return (share price performance with dividends reinvested) of 47.7 per cent compared with 16.2 per cent from the FTSE Small Cap Index and 12.5 per cent from the Aim All-Share (see graph).

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