Dealmaker’s Diary: This Cash-Rich Small Cap Has the Goods

Alpesh Patel|March 21, 2024

During the pandemic, the popularity of home organization multiplied like clean clothes waiting to be folded.

And the trend is still going strong as the sector continues to grow in value.

My GVI system has zeroed in on a cash-rich small cap that is all about helping people get their lives together… or at least their homes.

And I like what I see in the numbers.

The company’s forecast P/E is cheap. Revenue and profits are skyrocketing faster than a stack of precariously balanced storage bins.

The company also pays dividends. It’s like getting paid to fold your socks and alphabetize your spice rack.

And the stock has huge upward momentum. I could see it surging to its 2021 highs… which is a double from here.

Get all the details on the company – including the ticker – in my latest video.

Click on the image below to check it out.

 

Transcript

Hi friends.

Got an interesting… well, I always have an interesting stock of the week, don’t I? But I’m fascinated with this one partly because It’s not an American company, even though it’s listed in the United States.

And it’s a company from a region very much the news at the moment with, U.S. elections well underway with the primaries.

The company is Betterware de Mexico. I hope I pronounced that correctly. It’s a direct to consumer company in Mexico that specializes in home organization, practicality, and cleaning sectors.

Now, the idea here is give a bit of diversification, but actually to your portfolio. But actually the numbers are what attract me, and I find it interesting.

It operates through two segments: home organization products, and beauty and personal care products. Now, as Latin America and Mexico in particular gets wealthier, the demand you can imagine continues.

But I’m going to show you some numbers and the chart in a second which caught my eye.

As of March 2024, Betterware de Mexico has a market cap of $679 million. Now, that means I’m going to put it in the penny stock region because it’s under a billion.

And one of the things that attracted me to the company was just the increase in net revenue, just the rate of increasing net revenue, and also in profits as well, plus it pays dividends.

Now, for those of you who know the way I like to approach on my GVI research newsletter, you’ll know there’s a lot of boxes I need ticked as part of the due diligence. And one of those very important boxes is growth-value-income. This has got a rating of 9.

That’s my personal algorithm, which weighs growth, the valuation of a company, such as price to profitability, and income that’s generating dividend yields, as well as momentum. And it weighs each of those factors with value being the most important, then growth, then yields.

And it scores them out of 10 to make it easier for me to go through 10,000 odd equities.

This has got a 9, which is way above my minimum requirement is 7 or 9 or of course a 9 or a 10.

Forecast P/E is cheap. In other words, you’re paying $8 for every expected dollar in profits.

That’s relatively cheap based on historic terms in in relative terms to other similar companies in the sector.

Cash return on capital invested 27.2%. That’s good. It’s a formula used by Goldman Sachs Wealth Management for their wealthiest clients, and to be honest, roughly as a rule of thumb, anything above 10% to 15% is good. This is 27.2%.

See how I use CROCI as a secret sauce in my stock-picking here.

Generating a lot of cash for the capital they’re having to invest, which is good because that cash, of course, then feeds into profitability.

Sortino is a bit weak. The average return versus the risk, and that’s partly because the volatility is high. So be warned. Volatility is high on this one, as you’d expect with a penny stock.

So what do we have with it? Well, we have an upward trend, where which has seen the price almost triple since January of year. And were that trying to continue and it reached the highs of what it did in 2021, you would see a doubling of the price. And indeed on a discount cash flow basis, the stock is undervalued.

So a lot of things going for the company, And I think that pretty much sums it up in terms of the factors that I think are essential and of most interest to me when evaluating such a stock.

So hopefully you enjoyed it. And I look forward to speaking to you next week.

Thank you very much.