GPM Grade Companies - Selection Criteria
- Our client portfolios are actively managed and built on a solid, concentrated foundation of 20 - 30 individual companies. We focus on GPM Grade Companies; successful, high ROE businesses, small, mid and large, that we believe have a high probability of delivering rewarding long-term growth in revenue, earnings, dividends and ultimately, stock prices. You may be familiar with some, while others are lesser known companies discovered through our intensive research.
- We invest in individual companies that are built to survive and thrive, which gives us confidence to ride out market pullbacks and economic soft patches.
- We eat what we cook every day. Members of the GPM team invest in our focus list stocks alongside our clients. GPM's founder and lead manager, Tim Griffin normally owns all of our focus list stocks and other model securities that are held in client portfolios.
GPM pursues a growth at a reasonable price (GARP) approach to investing. We like well-run leaders and niche businesses capable of generating superior sales and earnings growth. We also favor companies that have a history of making smart strategic acquisitions and those that may be attractive acquisition candidates themselves. We look for fundamental changes or "catalysts" that can lead to an increase in the level of attention given to a stock.
Acquisition candidates will normally meet most of the following criteria:
Proven, credible and innovative management team
Durable portfolio of products that build customer loyalty
High ROE, ROA, ROC, and ROI (mid-teens+); exceptions can be made for banks and other special situations.
Predictable and sustainable growth in revenue, earnings and cash flow
Strong balance sheet with undervalued assets and/or hidden value
Good near-term business visibility or be priced to more than adequately discounted to reflect near-term uncertainty
Relatively inexpensive to reasonably valued based on multiple fundamental metrics
Undervalued on the basis of price/net cash flow
Manageable capital expenditures, acquisition plans and future capital needs
The underlying business value is substantially greater than the current share price and is growing. We develop our best understanding of the short and long term growth prospects relative to peer group companies and estimate a reasonable value of the entire business. Our analysis should provide reasons to expect the share price to materially appreciate within two years of purchase.
Substantial "insider" stock ownership by management, directors and others close to the company. We keep a close eye on insider trading activity.