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Home›Angling›Quality and value could be the main drivers of this small cap stock

Quality and value could be the main drivers of this small cap stock

By Elizabeth J. Dominguez
October 25, 2021
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Actions in Direct fishing (LON: ANG) are currently trading at 73.5p, but a key question for investors is how the economic uncertainty caused by Covid will affect the price.

Part of the answer is to judge whether the stock is well positioned to withstand economic shocks and overcome market volatility. To do this, it is worth looking at his profile to see where his strengths are.

The encouraging news is that Direct fishing has at least some of the traits that are often associated with of them influential drivers of return on investment: high quality and one relatively inexpensive pricing.

To understand where it appears, here’s a closer look:

GET MORE LON: ANG DATA BASED INFORMATION »

Buy quality at the right price

Good quality stocks are popular in the market because they are more likely to be strong, reliable companies. Profitability is important, but so is the financial strength of the business. A history of improving finances is essential.

One of the quality metrics for Angling Direct is that it passes 8 of 9 financial tests in the Piotroski F-Score. The F-Score is a world-class accounting checklist for finding stocks with trends in improving financial health. A good F-Score suggests that the company has strong signs of quality.

While quality is important, no one wants to overpay for a title, so an attractive review is also vital. With a weaker economy, profit forecasts are unclear across the market. But there are some valuation metrics that can help, and one of them is profit return.

Profit return compares a company’s profit with its market valuation (calculated by dividing its operating profit by its enterprise value). It gives you a total value of the stock (including its cash and debt), making it easy to compare different stocks. As a percentage, the higher the return on earnings, the better the stock’s value.

A rule of thumb for a reasonable return on earnings might be 5%, and the return on earnings for Angling Direct is currently 11.4%.

In summary, good quality and relatively cheap valuations indicate which stocks are among the most attractive to contrarian value investors. It is among these actions that we can find a real pricing error. Once the market recognizes that these quality companies are on sale, those prices often rebound.

What does this mean for potential investors?

Finding good quality stocks at cheap prices is a strategy used by some of the most successful investors in the world. But beware: these factors do not guarantee future returns and we have identified some areas of concern with Angling Direct which you can find out here.

Alternatively, if you want to find more stocks that show signs of high quality and value, just come and take a look at this Quality and Value screen.


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