Several times a year I meet up with investment professionals specializing in the analysis and purchase of small companies. We meet at conferences that often host 40+ companies with their CEO/CFOs presenting and available for 1×1 meetings. This fall, I discovered several things from my brethren — We are all in pretty much the same predicament regardless of our holdings, and business is better than reflected in the stock prices. We agreed that across the board, small companies are grossly undervalued – lagging large companies by unprecedented margins.
How this can be interpreted is that our small gems have a lot of room for a positive run. One of my highlights was spending a cocktail hour with the “guru” (to remain unnamed) in the small-cap arena. He has been in the industry for 50+ years (grandfather several times over) and has often been quoted in major financial publications for insights into smaller companies. Allow me to share his quick analysis of this time period in the small-cap space:
1. There is no trust; therefore no money pouring into small companies.
2. Business is better than reflected in stock prices.
3. We are now in the midst of one of the largest valuation gaps (difference between a company’s market capitalization and it’s revenue/profit potential) in his lifetime. He mentioned that he wanted to retire several years ago but decided not to leave on a downward note. We ended our discussion noting that we are both very optimistic and, although uncertain as to the timing, agreed that our patience will be rewarded. As it turns out – we own several of the same companies.