AS IRON SHARPENS IRON

[RandyKCMO]

JOHN AND RANDY'S CRITERIA FOR MICROCAP STOCK EVALUATION

I added the following to IBOX John...I figure they will be a bit of a work in progress. I know some of your rules are hard and fast...but I thought we could each weigh our sentiment/emphasis on the various criteria.

For now each of these Criteria will be worth a score of 10 points:

1. SHARE STRUCTURE: There are very few companies with over 100 Million Shares that will ever fundementally justify a higher stock price. Revenue and earnings are what valuations are based upon. P/E ratios are based on earned income. ON the basis of Share Structure, various factors will enter in: What is the authorized? Issued? Has company recently gone through a reverse split? Upper limit: Under 100M A/S and preferably under 50M O/S.

2. TRADING EXCHANGE: Fully reporting otcbb, NO PINKIES unless it is a stock trading simultaneously on a senior exchange in another country. If management is serious about full disclosure and building a successful company the Nasdaq Bulletin Board is the bare minimum.

3. INSIDER ACTIVITY/OWNERSHIP: Are Insiders buying or have they bought their own stock? If insiders are not buying, supporing, and holding shares of the company, why should investors? We would like to see companies with insider ownership of at least 20%.

4. DEBT STRUCTURE/DILUTION: Minimal dilution. Companies that have diluted in the past will almost always dilute in the future. If company has convertable debt, it should be clearly documented. Ideally, the money raised by going public or the capital raised via a capitalizing Private Placements will have enabled the company to successfully carry out its business plan. If it doesn't have a business plan that makes sense to you, don't invest in it.

5. REVENUE GENERATION: Developmental stage companies are the most risky sort of companies to invest in. It is much safer to invest in companies that have actual and increasing revenues, not just "plans" for big revenues somewhere in the future.

6. PROMOTION: Paid promotion is almost always bad. Penny pumpers might increase exposure, but ultimately hurt the value of the stock. If the company is giving away hundreds of thousands or millions of shares to promote their stock, you can be certain that the share price will only go up so long as the promotors have shares to sell. While getting their story out is important, how they do it is equally important. Do they use objective means like Dutton Associates and Red Chip Companies, or biased paid for "expert" reports? It is also worth noting how promotion is paid for.

7. GROWTH POTENTIAL: The company has to have the potential to be substantially bigger than it is today. No tiny "niche" business...but a potential very large company. This is what it takes for a company to be truly successful in the business world. Does it really have the potential to become a full NASDAQ or AMEX or even a NYSE stock? Minimal sustained revenue is $50 Million. And don't forget the minimum share price requirements of $2 of $5 per share. You can't uplist even if you are a real otcbb company, if you can't get the company big enough!

8. MANAGEMENT TALENT: Quality management generally has a track record. Do they know what they're doing? Are the leaders in their fields? What have they accomplished in the past? Are their results superior or at least comparable to peers in similar companies? The management should to be experts in their fields, and have no history of managing now-defunct or bankrupt stocks.

9. MACRO-ECONOMIC SENSE: Has to make sense macro-economically. Has to be in an industry growing so fast that there is enough room for the company and its competitors to eat, or a new (small) growing industry where is one of the bigger fish already. If company successful builds up revenues and earnings, will it likely become a buy-out target or will it be able to acquire other companies itself?

10. TRADING VOLUME/RANGE: Is the company well known or undiscovered? While a thinly traded stock can mean illiquidity, it lets one accumulate for the demand that will come when the company is bigger. I would also factor into this criteria trading history, volume, highs and lows.


It seems to me that items 7 and 9 are somewhat similar. Maybe there's another criteria I/we've not thought about? Suggestions welcome!

Coming soon...a table that records our evaluations and picks on the board. Get ready to submit your investment ideas and darlings to the test. No refunds or complaints. You will pretty much get our assessment....You don't have to like it. :)



The Light has come into the world, but men have preferred darkness. If you want to know the Truth, just ask. :)

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