Gurus Bank on Banco Macros

07/21/2016 10:00 am EST


John Reese

Founder and CEO, And Validea Capital Management

John Reese selects stocks based on the investing criteria of the market's most legendary advisors; the editor of Validea is particularly attracted to companies that earns high scores from multiple market gurus.

Banco Macros SA (BMA) is an Argentina-based bank ($4.4 billion market cap) that focuses on low- and mid-income individuals and small and mid-sized companies organized under the laws of Argentina.

The company has taken in about $1.5 billion in sales over the past year, and has a nice combination of growth (42% long-term revenue growth), momentum (93 relative strength), and value (12.1 P/E ratio).

The stock gets strong interest from my Warren Buffett strategy as well my Peter Lynch-based model. BMA also has just earned a top rating from my Motley Fool Small-Cap Growth Investor screen, which I review in more detail below.

The Motley Fool methodology seeks companies with a minimum trailing 12 month after tax profit margin of 7%. The companies that pass this criterion have strong positions within their respective industries and offer greater shareholder returns.

A true test of the quality of a company is that they can sustain this margin. BMA's profit margin of 28.15% passes this test.

Using this methodology, the investor must look at the relative strength of the company in question. Companies whose relative strength has outperformed 90% or more of the market for the past year, are considered attractive.

Companies whose price has been rising much quicker than the market tend to keep rising. BMA, with a relative strength of 93, satisfies this test.

Companies must demonstrate both revenue and net income growth of at least 25% as compared to the prior year.

These growth rates give you the dynamic companies that you are looking for. These rates for BMA (1,500% for EPS and 41% for sales) are good enough to pass.

A positive cash flow is typically used for internal expansion, acquisitions, dividend payments, etc.

A company that generates rather than consumes cash is in much better shape to fund such activities on their own, rather than needing to borrow funds to do so. BMA's free cash flow of $4.75 per share passes this test.

The "Fool Ratio" is an extremely important aspect of this analysis. If the company has attractive fundamentals and its Fool Ratio is 0.5 or less, the shares are looked upon favorably.

Manco Macros’ Fool Ratio is 0.27; as such, the stock passes this test. These high quality companies can often wind up as the biggest winners.

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