QUALITY CRITERIA
At Midway Partners Capital Management, we first focus on what we want to avoid. By quickly eliminating undesirable investments, we maximize the value of our research time .
We run all potential investments through the following criteria before we begin any due diligence or estimate intrinsic value. If a potential investments fails one of these filters, we simply move on to the next opportunity. If a company cannot meet this criteria, we do not want to own it regardless of any other factors.
Cash Flow
We avoid companies that do not consistently produce free cash flow.
Leverage
We avoid companies with significant debt. Companies should produce attractive returns on capital without needing leverage.
Acquisitions
We avoid companies that are serial acquirers. It is unlikely that frequent acquisitions can be made at attractive prices. These companies usually issue excessive shares or use excessive leverage to complete acquisitions.
Dilution
We avoid companies that dilute minority shareholders typically through excessive share-based compensation. Share counts should be flat or falling.
Secular Decline
We avoid companies in obvious secular decline. While many of these companies produce significant cash flow, it is difficult to project how rapid their decline or obsolescence may be.