Thursday, November 15, 2012

RCM Technologies Inc. (RCMT

It looked pretty cheap by way of some valuation multiples when I found it a few weeks or so ago and wrote briefly on them. The stock has been pretty active in recent days, up 5% for one day and is trading for $7 and change from $6.06 in the past couple weeks or so. I like that they have free cash flow, profit margins aren't the best but I suspect customers may be loyal and revenue pretty consistent. This one deserves a closer look at the overall business and competition to see if people are missing something and it is in fact undervalued. It is a tiny company. I'm not sure what good it would do to compare its valuation to the larger competitors or use a discounted cash flow model because its operating results are pretty sporadic in such a competitive industry.

I've had a lot of success spotting undervalued larger companies with sustainable competitive advantages that are undervalued because often just by looking at the financial statements paying attention to obvious things and looking at valuation multiples like pe, pe/pe growth, roe, etc. you can get a rough picture about whether or not it is cheap because it is being avoided for good reasons or stupid reasons like short-term fears or following the herd.

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