One approach to discovering undervalued stocks, popularized by Benjamin Graham, is the search for "net-nets." In this guide, we will explain how to identify net-nets using Koyfin and its screening and analysis tools.
What are Net-Nets?
Net-nets are stocks with a distinct financial profile, where their market capitalization (market cap) is less than their net current asset value (NCAV). NCAV considers total current assets minus total current liabilities, preferred equity, and minority interest.
Step 1: Defining Your Investment Universe
To identify net-nets on Koyfin, create a custom screen by following these steps:
- Select Your Universe: Choose your criteria, such as geographical location (e.g., focusing on U.S. companies).
- Sector Selection: Refine your screen by excluding specific sectors (e.g., excluding energy and real estate).
- Market Cap Range: Define your preferred market capitalization range (e.g., companies with market caps between $50 million and $500 million).
Save your criteria once they are set.
Step 2: Creating Custom Columns
To identify net-nets effectively, create custom columns in Koyfin to calculate the net current asset value (NCAV) and the difference between market cap and NCAV. Here's how to create these columns:
NCAV Calculation: Calculate NCAV using the formula: Total Current Assets - Total Current Liabilities - Total Preferred Equity - Minority Interest (Balanced Sheet).
Market Cap minus NCAV: Create this column to calculate the difference between market cap and NCAV, a crucial step in identifying net-nets.
By adding these columns to your watchlist, you can see the net current asset value and the market cap minus NCAV for each company.
Step 3: Identifying Net-Nets
With your custom columns in place, you can now identify potential net-nets. Sort your watchlist by "Market Cap minus NCAV," and you'll see companies where this value is negative. These are the potential net-nets you are looking for.
Further Analysis and Exploration
Once you've identified net-nets, consider these options:
- Customize Your Screener: Enhance your screener by adding additional columns like industry, next earnings day, or cash ratio for a comprehensive view of these companies.
- Expand Your Search: Run similar screens for different regions, such as Europe or Asia, to discover net-nets in other markets.
- Save as Watchlist: Save your net-nets as a watchlist for easy tracking and analysis. Utilize Koyfin's watchlist tools to explore the data further.
Check out this video to get more information about these features.