The Lemon Fool

Hello you very wonderful and intelligent people, i sincerely hope your day is going well today and you are happy.

I was kindly wondering about adding possibly one or two small cap stocks to my portfolio, which have a market cap between £250 million to £1 billion. My portfolio mainly consists of large cap stocks that pay dividends. I kindly wondered please if there is anything i need to look at more closely in terms of risks. For instance one small cap stock had alot of Treasury Stock which they could re-issue which would dilute shareholders which was not good. Further is there anything i need to look at more closely please at there business model, such as debt levels and other factors that are important for the company to continue growing please? If anyone kindly had any thoughts on this i would be forever grateful and thankful for your support it would mean the world to me.

Sending you lots of good wishes and hope you are having a successful week investing. Very best wishes and take care.

Hi Robertbanking,

I am an advocate of smaller and even mid caps, which can be much more dynamic and higher growth than some of the sluggish FTSE 100 giants.

How fixed is your range of market caps? I see you have topped out at £1 billion. One of the companies I hold is now £1.6 billion, but that is partly because it has been a multi-bagger since purchase in 2017: Kainos Group. It has strong ROCE, CROIC, good growth and future growth potential, as well as a decent and growing dividend.

Best wishes


Mark.

ADrunkenMarcus wrote:How fixed is your range of market caps? I see you have topped out at £1 billion. One of the companies I hold is now £1.6 billion, but that is partly because it has been a multi-bagger since purchase in 2017: Kainos Group. It has strong ROCE, CROIC, good growth and future growth potential, as well as a decent and growing dividend.

I believe in small cap investing and Kainos is one of my larger UK holdings. Unfortunately I didn't come across them as early as you did. The CEO, Brendan Mooney, comes across very well and their business is becoming increasingly international. I top-up from time to time and did so again not that long ago.

Pendrainllwyn

Pendrainllwyn wrote:

ADrunkenMarcus wrote:How fixed is your range of market caps? I see you have topped out at £1 billion. One of the companies I hold is now £1.6 billion, but that is partly because it has been a multi-bagger since purchase in 2017: Kainos Group. It has strong ROCE, CROIC, good growth and future growth potential, as well as a decent and growing dividend.

I believe in small cap investing and Kainos is one of my larger UK holdings. Unfortunately I didn't come across them as early as you did. The CEO, Brendan Mooney, comes across very well and their business is becoming increasingly international. I top-up from time to time and did so again not that long ago.

Yes, there seems to be very strong potential. It's a UK firm based in Northern Ireland and is expanding substantially. I'm glad found it in 2017. I bought at 244p as I recall and it hit over 2050p by 2021, but it had been under 150p in 2016. A year earlier, though, and the gains would have been substantially higher on a proportional basis. I do like software, too. I think it's scalable.

Best wishes


Mark.

Agreed. And their small scale acquisition strategy in the Workday service business seems to be working well. I like that they have built their own products around the Workday product. They come across as a switched on business that executes well. Will see if they can maintain that as they scale up.

Pendrainllwyn

ADrunkenMarcus wrote:Hi Robertbanking,

I am an advocate of smaller and even mid caps, which can be much more dynamic and higher growth than some of the sluggish FTSE 100 giants.

How fixed is your range of market caps? I see you have topped out at £1 billion. One of the companies I hold is now £1.6 billion, but that is partly because it has been a multi-bagger since purchase in 2017: Kainos Group. It has strong ROCE, CROIC, good growth and future growth potential, as well as a decent and growing dividend.

Best wishes


Mark.

Thank you very much for your response Mark, that was very kind of you, i very much appreciate your reply, it means alot to me, you are a very kind and wonderful person.

Initially i was looking at stocks under £250 million, micro cap, but often alot were non revenue generating, building cancer vaccines for instance. These might take alot of time to come to fruition and diluting shareholders regular. My range is not so much fixed, i would be happy to look at stocks from £250 million - £2 billion as small cap stocks. I am very grateful of you mentioning Kainos Group i will certainly read through their annual reports and see what the business was doing back in 2017.

Can i kindly please ask besides the ROCE, CROIC and good growth and future growth potential, what made you confident the management and business model would be scalable please? Did you kindly research any competitors and the market share of the business please? Did you notice any risks back in 2017 that the business might have had to overcome please? If you kindly had time to get back to me on this it would be more appreciated than you may know, i am eternally grateful for your support.

I am pleased you have done well in this stock it seems like your diligent research has paid off and i am pleased for you. Thanks for sharing your insights, its more appreciated than you may know. Good luck with your future investing and hope you continue to do well Mark.

robertbanking wrote:Can i kindly please ask besides the ROCE, CROIC and good growth and future growth potential, what made you confident the management and business model would be scalable please? Did you kindly research any competitors and the market share of the business please? Did you notice any risks back in 2017 that the business might have had to overcome please? If you kindly had time to get back to me on this it would be more appreciated than you may know, i am eternally grateful for your support.

I do put a lot of focus on these statistics as an indicator of business quality.

I don't have my notes with me, but I normally check to see if it looks like a business has scope to expand: in terms of market share and also whether the market is growing. I do remember looking at some of the businesses the company contracted with, which included IIRC AstraZeneca and other blue chips. They do seem to have lots of opportunity internationally.

In terms of being scaleable, I think there is an inherent benefit for software or 'platform' businesses in that they will benefit increasingly as the number of users grows, because their costs will not grow by the same proportion. Once the software has been developed, they will need to continue developing it and keeping up to date, but they do not necessarily need to do much more whether 1,000 people use it or 150,000. (By contrast, a car manufacturer has to make more cars to generate more profit. There will be economies of scale and maybe price per unit, but it requires capital to manufacture more cars.)

I was very impressed by the management and chief executive (these are hard judgements to define).

Any business has risks, but from a financial point of view I remember Kainos had a strong balance sheet.

robertbanking wrote:I am pleased you have done well in this stock it seems like your diligent research has paid off and i am pleased for you. Thanks for sharing your insights, it's more appreciated than you may know. Good luck with your future investing and hope you continue to do well Mark.

Thank you, robertbanking. I wish you well also!

Best wishes


Mark.

ADrunkenMarcus wrote:

robertbanking wrote:Can i kindly please ask besides the ROCE, CROIC and good growth and future growth potential, what made you confident the management and business model would be scalable please? Did you kindly research any competitors and the market share of the business please? Did you notice any risks back in 2017 that the business might have had to overcome please? If you kindly had time to get back to me on this it would be more appreciated than you may know, i am eternally grateful for your support.

I do put a lot of focus on these statistics as an indicator of business quality.

I don't have my notes with me, but I normally check to see if it looks like a business has scope to expand: in terms of market share and also whether the market is growing. I do remember looking at some of the businesses the company contracted with, which included IIRC AstraZeneca and other blue chips. They do seem to have lots of opportunity internationally.

In terms of being scaleable, I think there is an inherent benefit for software or 'platform' businesses in that they will benefit increasingly as the number of users grows, because their costs will not grow by the same proportion. Once the software has been developed, they will need to continue developing it and keeping up to date, but they do not necessarily need to do much more whether 1,000 people use it or 150,000. (By contrast, a car manufacturer has to make more cars to generate more profit. There will be economies of scale and maybe price per unit, but it requires capital to manufacture more cars.)

I was very impressed by the management and chief executive (these are hard judgements to define).

Any business has risks, but from a financial point of view I remember Kainos had a strong balance sheet.

robertbanking wrote:I am pleased you have done well in this stock it seems like your diligent research has paid off and i am pleased for you. Thanks for sharing your insights, it's more appreciated than you may know. Good luck with your future investing and hope you continue to do well Mark.

Thank you, robertbanking. I wish you well also!

Best wishes


Mark.

Thank you very much Mark, you are a wonderful human being, its really interesting to hear your opinions on this company. It might also help when trying to find other small cap stocks on the fundamentals to look for. I really appreciate your support with this.

I know that the more undervalued a stock is the more room there is for the stock to grow. I kindly wondered if you did any calculations on the fair value of the stock, using future predicted cash flows please? Do you kindly think this company will be able to grow without incurring any debt, as i know some companies leverage debt to grow the marketing side or the business model please? Lastly did you kindly review competitors annual reports, or just look into the financials and their business models please? If you kindly had time to answer these few questions it would mean the world to me, i am eternally grateful for your support.

Thank you for being an amazing person and sharing your thoughts, its really helpful to me as i continue to learn about small cap investing. Have a fantastic weekend Mark and i am sure you will continue to do very well investing. Sending you lots of good wishes.

robertbanking wrote:

ADrunkenMarcus wrote:
I do put a lot of focus on these statistics as an indicator of business quality.

I don't have my notes with me, but I normally check to see if it looks like a business has scope to expand: in terms of market share and also whether the market is growing. I do remember looking at some of the businesses the company contracted with, which included IIRC AstraZeneca and other blue chips. They do seem to have lots of opportunity internationally.

In terms of being scaleable, I think there is an inherent benefit for software or 'platform' businesses in that they will benefit increasingly as the number of users grows, because their costs will not grow by the same proportion. Once the software has been developed, they will need to continue developing it and keeping up to date, but they do not necessarily need to do much more whether 1,000 people use it or 150,000. (By contrast, a car manufacturer has to make more cars to generate more profit. There will be economies of scale and maybe price per unit, but it requires capital to manufacture more cars.)

I was very impressed by the management and chief executive (these are hard judgements to define).

Any business has risks, but from a financial point of view I remember Kainos had a strong balance sheet.



Thank you, robertbanking. I wish you well also!

Best wishes


Mark.

Thank you very much Mark, you are a wonderful human being, its really interesting to hear your opinions on this company. It might also help when trying to find other small cap stocks on the fundamentals to look for. I really appreciate your support with this.

I know that the more undervalued a stock is the more room there is for the stock to grow. I kindly wondered if you did any calculations on the fair value of the stock, using future predicted cash flows please? Do you kindly think this company will be able to grow without incurring any debt, as i know some companies leverage debt to grow the marketing side or the business model please? Lastly did you kindly review competitors annual reports, or just look into the financials and their business models please? If you kindly had time to answer these few questions it would mean the world to me, i am eternally grateful for your support.

Thank you for being an amazing person and sharing your thoughts, its really helpful to me as i continue to learn about small cap investing. Have a fantastic weekend Mark and i am sure you will continue to do very well investing. Sending you lots of good wishes.

Hello Mr Banking, or may I call you Robert.

You have a wonderful way with words that seems to brighten up everyone's day, this is not common to see on a financial forum like this. Do you mind if ask a little about your background, you seem a little different to our normal users here. Are you from the UK? What is your normal job?

Regards
John