Eidelman Virant Capital - St. Louis Investment AdvisorsHomeAbout UsInvestment Philosophy & ProcessPerformanceInvestment CommentaryContact Us

Value Investing

Value investing has been the core of our investment philosophy since 1982.  We look for bargains, stocks trading below our estimate of their true worth.  We determine value in the following ways:

  • Price-to-Book Value (P/B) – Book value is a guidepost for our valuation process. We carefully examine the quality and quantity of a company’s underlying assets.  Provided these assets can be more profitably utilized, a below normal P/B can indicate the potential for price appreciation.  Furthermore, the underlying asset value offers a measure of downside protection.
  • Free Cash Flow-to-Enterprise Value (FCF/EV) – Free cash flow measures the cash brought into the business that can be used to buy back stock, pay down debt, or distribute dividends, all of which return value to the shareholder.  FCF/EV also helps us more easily compare companies with varying levels of debt.
  • Price-to-Normalized Earnings (P/NE) – Though P/E may be a crude measure of valuation, studies have shown that low P/E stocks outperform their more expensive counterparts over time.  However, low P/E stocks can be overvalued and high P/E stocks can be undervalued, so we go a step further. We look at a company’s normalized earning power and determine if the stock is trading at a discounted valuation to those normalized earnings. (See Reversion to the Mean for more detail)