ACS Curve Impact on MTQ Score

For stocks under study, Absolute Cost Structures (ACS) above 70% are associated with rapid falloffs in MTQ Scores and low MTQ Scores are predictors of low Net Profit Margins.

We will be monitoring stock price performance of a basket* of stocks over the next 24 months in order to establish whether or not there is a statistically significant correlation between price performance and MTQ Scores.

If we are able to ascertain that MTQ Scores serve as predictors of price performance, those scores will become cornerstones of our stock selection process.

*Fahy Capital Management does not necessarily own shares of the stocks under study.

MTQ Scores of Recently Evaluated Stocks

Note: A high score (> 0.5) implies a greater-than-even chance of an enterprise exhibiting both a high Net Profit Margin and low Absolute Cost Structure at the Long-Term Price Case at which it was evaluated.

Our Hypothesis: High MTQ Scores are a reliable determinant of Future Market Cap Growth

The MTQ Score is the 4th pillar of our updated valuation methodology. It will be published in future analyses alongside TAIC, ACS and True Value.

New Direction — Say more with a lot less.

We are taking our approach to the valuation of businesses in a new direction.

Many metrics, including those that measure resources relative to shares or market cap, have proven of exceptionally low utility, so they will be left by the wayside, as will be quick and dirty market cap valuation methodologies in which the divisor is company shares.

We will be discontinuing the Deep Value Grading System, as well, as it too easily lends itself to misinterpretation.

Basic cash flow analysis will take a back seat to a new costing methodology that leverages our experience with and passion for cost accounting: True All-in Cost (TAIC). Four additional valuation metrics extend therefrom: True Value, True Value Discount, Absolute Cost Structure (ACS) and MTQ Score.

The following key metrics will now represent the chief means by which we arrive at determinations concerning value:

True All-in Cost (TAIC)
True Value*
True Value Discount (TVD)
Absolute Cost Structure (ACS)
MTQ Score

Although we have devoted a great deal of time to the development of our acquisition formulas (TAC), they too have proven of too little essential everyday value to support unless we find ourselves in a situation that requires the valuation peculiarities that set them apart, including their spot price independence.

*True Value shouldn’t be misconstrued as a Price Target. Our targets are based upon projected annual cash flows to which a multiple is assigned; the multiple is determined by analyzing Net Profit Margin and Absolute Cost Structure.

Occasionally, at our discretion, we will publish a Target in addition to True Value.

Final Thoughts (They are never final.)

Historically, our valuation methodologies have utilized fully-diluted shares. We are actively considering transitioning to a Free-Float methodology in order to better anticipate future tendencies of price.