Equity Selection
Montague Capital's bottom-up stock selection process has five key criteria, which companies must pass in order to be selected for investment, namely:
- Focus on core business
- Strong industry position (dominant or niche player)
- Growth in revenue
- History or potential to generate cash-flow returns above the cost of capital
- Below peak valuation multiples
We have constructed an investable universe of companies with two predominant characteristics. Companies either have a history of creating a cash flow return on invested capital above their cost of capital (equity and debt). Or they have the potential to undergo a fundamental change in strategy that will enable value creation in the near future.
Companies that pass the initial screen and can sustain their profitability, either through a global competitive advantage or by operating in a non-competitive market, are selected. For these companies, a long-term discounted cash-flow model is constructed to estimate the intrinsic value and determine a target price.
Finally, the timing of the decision is refined through analysing news flow, identifying valuation anomalies, monitoring revisions in consensus earnings estimates and applying technical analysis.
If you have any questions about any aspect of investment management or any of our services please contact us
