"The current ratio (CR) is one of the most useful liquidity ratios in financial analysis as it helps to gauge the liquidity position of the business. In simple words, it shows a company’s ability to convert its assets into cash to pay off its short-term liabilities."

"Current ratio helps in understanding how cash rich a company is. It helps us gauge the short-term financial strength of a company. Higher the ratio, more stable the company is. Lower the ratio, greater is the risk of liquidity associated with the company."

We want > 1.5 for margin of safety, in order to justify for entry, at least for our method in this post, assuming you want to stay on topic.

@i3lurker
As to why BPlant CR only 0.34 versus MHC with CR of 2.02, and Bplant MC/FCF of 2307/ 343.5=6.71 years versus MHC MC/FCF of 2.3 years, I shall leave you to investigate, justify and decide which will be the ultimate performer, because I do not process the superpower ability to predict future.

Strategies to prevent heart attack: Do not teach your heart and immune system how to do it's job with chemicals.

Let's compare some US stocks:

Stocks Market Cap / FCF = years to double
FB 581.062 / 39.116 = 14.9
TSLA 1033 / 4.983 = 207.3
BABA 320.23 / 14.61 = 21.9
APPL 2778 / 101.85 = 27.3
PLTR 26757 / 353.38 = 75.7

No wonder Buffet rather keep cash now.

new finding: TAKAFUL

leader in Insurance sector, TAKAFUL MC/FCF = 2941b/1441b=2.04 years

OR 72/2.04 = 35.3% Annual Rate of Return.

Hmm... Now I remember why Warren Buffet love insurance business.

Thank you for appreciating @DragonG @Mikecyc @zhangzuode @markgold @piranha88 @soon2795

Please take note that the following stocks DID NOT MAKE IT to the final because they have a NEGATIVE FCF either in last quarter or TTM, in case you wonder.

BPPLAS, D&O, DLADY, ELSOFT, FM, HONGSENG, IDEAL, KGB, KOBAY, KRETAM, LUXCHEM, MYEG, QES, RGTECH, SAB, TGUAN, TONGHER (please also check in case i make any mistake.)

Once in the final, we pick the leader in each sub-sector, the rest you know the drills already as per all my previous comments.

Today we witness Sapura Energy (SAPNGR) asking for bail out, another fiasco after MAS, 1MDB, SERBADK alike, so let's take a look at how this methodology could have long avoided this disaster as investor:

SAPNGR analysis:

1. Debt / Equity: 42 (>0.5 damn ugly)
2. Current Ratio: 0.21 (<1.5 damn ugly)
3. ROE: -2,070.0% for last Q alone! (negative, damn ugly)
4. Growth: YoY Loss Widen, QoQ Loss Widen
5. FCF (TTM): -71m (it has been negative since Dec 2017, damn ugly)

Sapura Energy CEO’s Salary Is Being Paid Averagely RM 72 Million To RM 85 Million A Year Despite Company Losing Billions
https://thecoverage.my/sapura-energy-ceo-salary-is-being-paid-averagel...

The faces of this bad management can be seen here, these people just made the company lost RM6.6 billions:
https://www.sapuraenergy.com/about-us/board-of-directors/

Perfect candidate to short it to zero, only suckers (the creditors and investors) will keep pouring money over such liability. This stock should be priced negative.

7 Benefits of using this methodology are:

1. Only need work 4 times a year, with little monitoring and good margin of safety. If freedom is what investor look for, they should seek time freedom, not only financial freedom.

2. To punish all mediocre leaderships by shifting funds out from bad management and put into well managed companies. To help entrepreneurs understand fundamental indicators to look out for business health and also to attract future investors.

3. Less redundant high frequency trading, less brokerage fees. Less noise.

4. The Buy and hold journey allow us to spot potential multi-bagger, and to be able to steer out of risk earlier than most investors should the company face unforeseen financial danger like the classic 1MDB or Serbadk case.

5. Very low financial risk, sleep well, eyes better, better mood and lifestyle, priceless.

6. No need to subscribe to signal providers, no dangerous tips, no speculations, no need to follow hearsays or news, don't even need to read redundant analyst reports. None of them will help you. These selected stocks will have much lesser sell queues in the float simply because savvy investors by confluence will automatically reaching to the same stock based on their findings without being told.

7. Don't even need a chart. (with the exception that if you want to manage or determine your technical entry risk). I spent decade of studying useless lagging indicators only to end up preferring this classic method of investing.

If you like what I wrote here, i'm sure those wasted years of mine will not be wasted after all.

REDTONE leads telco to the final with this method. With that I believe I have mentioned all 7 leaders from 7 sub-sectors.

We reached a total 117 comments and 3200+ views here, so if you are a later comer, no choice, please take time to read them all from the beginning before commenting. Thank you.

If it takes MHC's example of 2 years for current FCF to equal current market cap, does it mean theoretically our investment gain should be equal our initial vested capital too in 2 year's time? If so, are we looking at 2x investment in 2 years for MHC example?

Or should we use Rule of 72 to get annual rate of return of 72/(2 years) = 36% annual rate of return.

If so, based on today's price of 1.16 we should safely reach 1.16*1.36=1.58 in a year?

Also we need to account for that each sector will prevails differently in each quarter, this Q plantation is #1, but Shipping (currently #2) could be the #1 in next Q, so if u get into say all Top 7 for example, though you have no idea which will be the next #1 sector, but you roughly know that it should likely be either one of the Top 7 given it's growth and cashflow performance ranking versus it's peer. This is a heuristic approach. I am not sure if i delivery my idea clearly with text here, but i trust you understand what i meant.

@twynstar think of it as MMA fights with categories: feather weight (small cap), middle weight (middle cap) and heavy weight (blue chips).

Each category has it's own glory fighters. As we bet which fighter (stock) will be the champion eventually, but would u like to participate in multiple bets in each category?

@twynstar i agree with your decision making. Giving that view,

Should you then all in for "champion" MHC (Plantation) as it's MC/FCF is merely 2.1 years?

Or should you diversify slightly to considering other sector like the runner-up HARBOUR (Transportation & Logistics Services) with MC/FCF of 4.2 years?

Eventually, I believe the decision lies entirely in the way how you want to structure your portfolio.

@VenFx

Welcome and thank you for your appreciation.

Remember look at first 2 rules as Margin of Safety for long term debt and short term obligation. Safety is #1 priority that's why they were mentioned first and mandatory.

@Sslee @twynstar @qqq3333

Basically Buffet once said "Price is what you pay, value is what you get". Investors like to pay less for more value, true value of business is none other than the ability to bring in cash aka FCF, hence the birth of getting the low P/FCF idea, however it should be noted that ideally should be compared to it's peer within the same sector, as each business has different FCF structure. What we are interested here is have a tiny (<10 stocks portfolio), not to build ETF with 10-20 stocks. So the #1 from < 10 sectors is sufficient to form a manageable portfolio for most retailers, easy for quarterly rebalancing, it can even be useful for institution players, if they are reading.

@twynstar

P / (FCF per sh) = Market Cap / FCF = how many years it take for current FCF to equal your current market cap. as @Sslee kindly pointed out, is making more sense than what i previously used crudely. Only problem is based on stockopedia definition to use DILUTED shares outstanding, I'm not sure my 3rd party data accounted for that. I just tried to avoid open every cashflow statement to go through it.

btw, my apology for using initial crude method that caused confusion. I deleted some previous post to avoid new comers repeat same question.

The Esceram (Industrial Materials, Components & Equipment) vs Pchem (Chemicals) issue should not be an issue if you were to invest in 7 different sub-sectors for a mini diversification, as they are both in the Top 7, incidentally the 'per share' or 'market cap' attribute did not change the ranking to get the top in each sector. But it do change the way we view the meaning as @Sslee pointed out.

@twynstar @Sslee

I think both of you are right, do u mind to share what is your calculated MarketCap/FCF or P/FCF for the followings stocks for verification purpose:

ESCERAM
PCHEM

Appreciate your input & conclusion.

.
if u are thinking of selling HARBOUR, think again...

https://klse.i3investor.com/web/blog/detail/fundamental_trading/2022-03-12-story-h1600212706-Guess_what_Stocks_I_found_using_improvised_Warren_Buffet_Stock_Selectio

.
if u are thinking of selling INARI, think again...

https://klse.i3investor.com/web/blog/detail/fundamental_trading/2022-03-12-story-h1600212706-Guess_what_Stocks_I_found_using_improvised_Warren_Buffet_Stock_Selectio

.
if u are thinking of selling REDTONE, think again...

https://klse.i3investor.com/web/blog/detail/fundamental_trading/2022-03-12-story-h1600212706-Guess_what_Stocks_I_found_using_improvised_Warren_Buffet_Stock_Selectio

Let's take a moment to check out P/FCF FOR Alibaba, Apple and Tesla without look at other parameters, hope my number is accurate.

AAPL = 166 / 101853 = 0.16%
BABA = 103 / 14610 = 0.7%
TSLA = 920 / 4983 = 18.5%

To get a feel of it.

@markgold follow the method and you shall find.

For plantation, the leading MHC has about 1% P/FCF only, don't trust me, check the numbers yourself. Like I say, I need your help to verify, in case i got it wrong somehow.

For Semiconductors, we have INARI made it to final with P/FCF of 0.76% (<1% WOW).

Remember all 5 condition must be met, if only P/FCF not going to work. When you reduce most fundamental risks, you are in the right boat.

Feel free to correct me if I happen to make any mistake. Thank you for reading.

Good morning.

It may sound crazy to people new to this strategy, using this strategy once entered, we hold on the portfolio like a Fixed Deposit, only to review it quarterly. Essentially, this system requires you to work only 4 times a year only. Your broker might not be happy to earning so much lesser commission from you, but your risk is kept extremely low this way.

There is 2 more stocks for case study, stay tuned.

Dear Savvy Investors,

Run this simple test to see what you are holding:

Calculate: Price of stock / Free Cash Flow (TTM) Trailing 4 months in million

We want to see < 2% here. If your FCF is low (or worse negative) and still insist it's a great company, please don't convince me here, try elsewhere.

Remember Risk is high when P/FCF is high.

Businesses exposed to commodities jolly well know how to hedge commodities price volatility via futures and options to ensure material cost low and selling price high, are investors better in timing it than them who are in the business day in day out? If the answer is no, should we be concern of temporary commodities swing as long term investor? As long as the trend is in favor with the safety nets abovementioned in place, retracement is seen an entry opportunity, it should be the breakout that is profit taking because when price is high the P/FCF is higher and seen as less favorable, investors do no cut loss in a retracement, they enter more when 20% retraced. Don't confuse my name Fundamental Trader as someone who like to trade often.

The reason(s) some need to ask repeated question and not getting my reply:

1. you have not read from the beginning yet.
2. you have not read twice from the beginning yet.
3. you have not read thrice from the beginning yet.
4. you like disturbing peace.
5. you have other agenda.

Instead, any constructive comments from veterans here?

The temporary weakness of PCHEM is probably due to EPF selling to cater for withdrawal, and the temporary weakness of MHC due to FCPO retracement, so you can guess how far it will retrace, usually it should bounce around 20%, just sharing a little timing strategy here. The others (HIBISCS, ESCERAM, HARBOUR) are all green today, and expected to be mostly so for the next 1-2 months at least. Over here we take long term view, but monitor quarterly, conversations here are just pass time, networking and sharing. Remember money will made sleeping, not trading.

@Sslee Pay attention that I use TTM (means trailing last 4Q) here for the FCF, others might be using Annual or Last Q. So the calculation could differ based on your perspective even we look at the same FCF.

Today let's talk about among the 38 stock list I filtered, the lowest P/FCF(TTM) among the Chemical sector is non other than PCHEM i.e. 9.44/6819m=0.14% (<1% wow).

Feel free to check if i do any mistake.

@qqq3333 However, to your dismay, I'm neither in favor of insisting anyone nor needing an employer. If this is your personal wish, don't let me get in your way. You are free to market this idea to them, it is given freely to you, it's yours now. It's easy to do many things, but it's difficult to do nothing (holding the stocks with conviction and see it grow).

@king36 I thought it was obvious that all Top 5 has been mentioned if you read all above. Take your time, I'm in no hurry to spoon feed but to give you the tool you can use for your life long learning.

I'll be adding one more soon, check back again next week.

@qqq3333 I do not write for "public" consumption, I wrote to discuss with savvy investors. Search "Why Warren Buffett Doesn't Diversify (Too Much)". No I don't intend to do ETF, in fact ETF is counter intuitive to the original intend of this post. Read from the beginning if you find yourself lost, 5 comments to say 1 thing is totally unnecessary. Also, if ETF is your agenda, feel free to post in your OWN blog instead.

@Souljaboiiii

I did not say "companies with negative FCF are bad companies"

All I'm saying is good companies most commonly has positive FCF.

You talk about Exceptional, I talk about Conditional here.

If I said I prefer to eat guava as it's heathier with low sugar and higher fiber, do I imply that apple with high sugar content is bad fruit that you should not eat?

No, I do not tell you what to do here. I'm just telling you what I like to do. Ok for you?

The reason I put this method all out in the open is so that everyone will get the answer without the need of asking anyone. When you have the method, the numbers can be easily found and verified.

@Sslee issue with INSAS based on this methodology is: ROE too low, YoY -68.29% QoQ -2.39% hence failed the growth test. This is only my opinion. To initiate a buy based on this method, ALL 5 conditions MUST be fulfilled.

Let me put it realistically: Value is nothing without growth, growth with high debt is risky, cash without return is meaningless business, return without efficiency is incompetent. Imagine if investing is like a plane, you need many components for it to function flawlessly, all I'm asking for pilots (readers) here to do is 5 checks before take off. It's going to be long distance flight and you don't want to wake up in a plane crash scenario.

Remember, I'm not saying your stock is not good enough, I'm just saying that there are better method to find a wonderful company at a wonderful price. You may have found a good price, but it doesn't mean it's a wonderful company. Wonderful companies has characteristic that Warren Buffet understood over the decades, I'm just a student who shares my opinion.

Rationales behind the numbers:

1. Board of Directors who like to turn to borrowing as solution will not achieve Debt/Equity < 0.5

2. Board of Directors who are not efficient managing resources will not achieve Current Ratio > 1.5

3. Board of Directors who don't focus on business profitability will not achieve high ROE.

4. Board of Directors who didn't focus on expending their market share and margin will not achieve YoY and QoQ growth.

5. Board of Directors who like spending on luxury cars or bungalows will not achieve low P/FCF ratio.

"It's far better to buy a wonderful company at a fair price, than a fair company at a wonderful price." - Warren Buffet

P/S: This post simply tries to achieve a wonderful company at a wonderful price, with the least effort.

@stockfreak

Since we are talking about WB's selection model, it's noteworthy to mention that Warren Buffett does not use P/E ratios, let alone forward PE. If you have other quantifiable method that you like me to check out, feel free to mention here.

"Outlook" is someone's else opinion/wishlist written by his macai analyst to protect his organization's interest. Nobody should be investing based on someone's else opinion.

As explained, earning can be easily manipulated, but not cashflow. Let's stay on topic.

P/S: Bookmark this space, I shall update next quarter's list here in the comment.

@markgold thank you for the recognition.

@stockfreak estimated future (“forward”) earnings per share (EPS) of that company is provided by analysts. How accurate is their estimation? How many people actually follow them? Glove problems were long avoided with low FCF companies when their cashflow shrink. Well, on Prediction? Investment is not about astrology. Would you rather prefer creative financial number over old school? Would you believe future EPS reported by analysts you don't even know and funded heavily by company PR teams? As mentioned, this post is not about timing the market, not even telling anyone when/what level to buy or sell, we are using this methodology for risk management with sufficient margin of safely, fundamentally speaking. If you pit forward PE to FCF, i would rate FCF far more superior given many reasons i prompted above. But feel free to share further contrary views which i'll always welcome.

After Thoughts: Switching from frequent trading to long investment will free you up time to enjoy life, too much screen time cause harm to eyes and health, the objective is to spend more time with family (less on trading) and sleep soundly while seeing your solid investment grow over time.

@VenFx
Thank you for appreciating. I hope more retailers in Bursa invest only in good companies by avoiding all the traps (debt traps, value traps etc).

@Sslee
you are right. Another Top 3 (from different business model) is HARBOUR.

low PE can be misleading in INNO case (and many examples) where it's PE low but P/FCF is so high, which is why i no longer use PE because earning can be easily manipulated, but Cashflow (FCF) is king.

@Goldgent @harold8990 @paktua73 @soon2795

Yes we already confirmed ESCERAM & HIBISCS are on Top 4.

SOP, KMLOONG & HSPLANT is not the lowest P/FCF in plantation, so keep looking for that cash cow.

Definitely not FRONTKN or INARI which P/FCF valuation shows too expensive. But you got CEPAT right, it's #2 in Plantation.

DLADY & D&O has negative FCF, so run, pls check before comment.

Please AVOID negative FCF companies! Let us here at least think like a Warren Buffet's disciple. I follow this to avoid overtrading myself, the real money is sitting on your hand, if you like clicking action, go play first shooter games, instead of burning your fund.

Essentially this method combs the whole market to look for only 3 or 4 stocks and certainly not necessary to have more than that. IF u want Top 3 only narrow to P/FCF < 10.

Stay focus, stay on topic. Please read from the top before start commenting, thank you.

@vllyk @Johnzhang

TIMECOM did not make it to the final too because it has insignificant FCF relative to it's price, aka over valued from cash flow perspective, hence avoid.

If u want to follow this method, FCF is the most important criteria to stick to. A stock with bad FCF is simply not worth your time.

SOP is qualified, however there is a cheaper plantation cash flow valuation stock than SOP.

At this point, I guess the readers already don't need me telling them which one already.

Luck comes to those who prepared, and I hope you prepare with some work. There is nothing else to do once u identified those Top 3 or Top 5, stick to it or average down depending your strategy, then review in the next QR, which is 2 months away.

Maybe see you in another post after 2 months.

@koja6049 INNO has poor/insignificant Free Cash Flow (you can check this yourself), hence it did not pass the 5th filter.

Well, you spotted on ESCERAM, it's at the 4th place. HIBISCS ranked (ascending) 3rd by Price / Free Cash Flow after all the 4 screening steps.

So I shall leave it to the readers here to find the 1st and 2nd. Today seems to be a good rebound day to talk about this. ;)

@vllyk you are spot on, HIBISCS is the top 3.

For other, please seek in quarter reports and you shall find.

@Johnzhang I would not consider it long term if i need to reshuffle stocks on quarterly basis based on abovementioned criteria. Even short term traders would rather avoid long term fundamental risk given the opportunity. I mean, if u have to trade shorter term, it would be to your advantage to trade a better company than a lousy one.

Only 5 criteria to address Debt, Ability to meet short term obligation, returns, growth, cash flow / valuation. Probably close enough to avoid most future traps. Please give a like if u like it so far.

@Johnzhang

It this particular post, it addresses only stock selection model, not timing entry, it does not intend to address entry timing or volume analysis (which i use later on after the 5th step to time the entry), which is equally important. But Buffet, with deep pocket, does not need to time his stock entry/exist based upon economic or geopolitical reasons, if he does, he would have not held his stocks over several decades where wars have came an go. As long as the company still bring in cash flow healthily quarterly, we should stay vested. When you get to macroeconomy it's entirely another complex game where you could be shifting your fund to different asset classes like bond, forex, hedge fund, commodities futures, etc. What our discussion here entrails is a very simple yet effective narrowed scope. Just 5 rules here to minimize investment or trading risk greatly. Even for active traders, u don't want to expose to overnight risk, e.g. Serbadk has already long shown bad cash flow before it got... well, you already know the history.

@Goldgent

Yes, many plantation stocks, but the intend is not to buy a basket of it. You are right that the final has a plantation stock in it. But why did you surprise KRETAM made it to the 4th stage? Spoiler alert: KRETAM, however, did not make it to final because (again) of the uninteresting free cash flow performance.

@Johnzhang

Thank you for your input. IMHO, the QoQ criteria serves as an initial general "fundamental momentum" indicator for buying entry, but the holding reason does not require it as you have put it. The idea of this post is to find 3 stocks from 3 different business model. Among the plantation, I would favor the lowest P/FCF to be used as the 5th element of picking stock. But for plantation sector, you have identified it well, just yet to narrow it down to 1 single stock, sits well among u mentioned list.

@vllyk
unfortunately VITROX failed P/FCF < 20, failed Current Ratio > 1.5, avoid.
TIMECOM did not make it to the final too because it has insignificant FCF relative to it's price, aka over valued from cash flow perspective, hence avoid.

ok, seeing a value seeker is showing, let me first share with u the 38 stocks (after the 4 steps):

BPPLAS, CEPAT, CHINTEK, D&O, DLADY, EITA, ELSOFT, ESCERAM, FM, FRONTKN, HARBOUR, HIBISCS, HONGSENG, HSPLANT, IDEAL, INARI, INNO, JFTECH, KGB, KMLOONG, KOBAY, KRETAM, LUXCHEM, MHC, MPI, MYEG, PCHEM, QES, REDTONE, RGTECH, SAB, SCICOM, SOP, TGUAN, TIMECOM, TONGHER, UTDPLT, VITROX

Please take note that 5th step of getting the Free Cash Flow is very important steps to ensure profitability.

In the past I would have diversified widely, but if u know what u are doing, u don't need to diversify too much (e.g. like >7 stocks), otherwise it's better just to buy index fund.

So, when can we reach 20 comments? well, u can first start checking on with the 38 i have shared above to see if it's inline with your investment objective.

btw, forgot to mention I arrived at only 38 stocks after the first 3 steps, and when completed the 4th step, I reach the 3 stocks mentioned.

But not much comment here, so we shall wait for others to see what they think.

20 comments is not too much to ask for, hopefully.

After emphasize profit growth so much, then ended up picking TDM.

I start to wonder if he has dementia.

Comments here sound more intelligent than the post's of the author himself.

.
Revenue ↑ 13.5% Profit ↑ 1,132.2%
YoY +1,172% QoQ +2,928% dy 0.91%
PE 3.0 ROE 26

.
Revenue ↑ 20.2% Profit ↑ 39.1%
YoY +39.1% QoQ +514% dy 3.1%
PE 3.8 ROE 14