Motley's astute take on MBE

Just read a very good piece from Motley's who are quoting my Buffet approach showcasing why MBE is "firing on all cylinders (and at accelerating rates)." They also praise the 57% EPS lift which is what SP appreciation is all about.

As I've been saying, MBE is the real deal and the pendulum is swinging and it is cheap Minzwear IMO, keeping  buying right now champ. The funds are doing just that IMO.

Motley's astute take on MBE ........

Here is what I look out for when investing in small-cap stocks using Mobile Embrace Ltd (ASX: MBE) as an example.

1. Free cash flow

As the adage goes, cash is king. Free cash flow is the number one thing I look for when investing in small-cap stocks as a company’s survival depends on its ability to earn money and pay its debts.
A company which is able to generate free cash flow suggests its business model is working as its customers are willing to pay for its goods/services without spending too much in return. It also implies that the company has a manageable debt load.
Mobile Embrace appears to satisfy this requirement with its 2016 full-year results revealing net cash increased $8.4 million to sit at $18.0 million at the end of the financial year. While strictly not a result of operational activities, given $12 million was raised from a share purchase plan to fund $15.5 million worth of acquisitions, excluding these one-off items Mobile Embrace generated $6.3 million from operations. Free cash flow (excluding one-offs) was $4.9 million, up on prior year, indicating robust cash generation.
This represents a good balance between current operations and future growth initiatives.

1. Profitability

As noted above, free cash flow can be augmented by one-off items such as capital raisings and accretive acquisitions. Accordingly, investors should overlay a company’s free cash flow with its profitability to ensure the business is actually performing.
In this regard, Mobile Embrace is firing on all cylinders (and at accelerating rates). Management declared net profit after tax swelled to $4.9 million on earnings (EBITDA) of $9.5 million. The result was driven by a whopping 83% increase in sales revenue, demonstrating its growth strategy is truly taking hold.

1. Price

Finally, to quote Warren Buffett, price is what you pay; value is what you get. Investors mustn’t buy small-cap stocks simply because they are “cheap”, as this strategy can lead to long-term pain.
More often than not, lesser known stocks demand high price-earnings multiples because of their future potential, rather than current earnings. Therefore, if investors focus solely on price-earnings ratios, they might end up buying stocks they shouldn’t and skip ones they should be buying.
Mobile Embrace is an example of the latter, given it trades on a price-earnings ratio of about 27 which is almost double that of Commonwealth Bank of Australia (ASX: CBA). However, unlike CBA, Mobile Embrace grew earnings per share by 57% in its last financial year and reported a 61% increase to net profit after tax.
If these numbers can continue, Mobile Embrace’s current share price will be considered cheap in a few years’ time as its future earnings justify its current price.