I love to see a company display diligence to the marketplace. As an individual investor trying to navigate through all the information, probably the most important is a company’s quarterly and yearly financial reports.
Yet, as an investor, you don’t work at the company you’re considering for investment, so it is very difficult to determine just how competent a company’s management team really is. With this in mind, time is always your greatest asset.
Over time, you can really get a good handle on whether a company’s management team knows what it is doing. You can learn a lot from a company’s financial reports, but this data always represents the past.
What I like to see in small- and mid-sized companies is a track record of success, mostly by strong organic growth, but also by acquisition. Often, unsuccessful companies with unsuccessful business plans, try to buy their way out of mediocrity. They often try to purchase a company of equal or larger size so as to jump- start their own declining business. This is usually a recipe for disaster.
What I really like is when an already successful company, with a track record of operational and financial growth, goes into the marketplace and makes strategic, small acquisitions. Smaller acquisitions are much easier to consolidate with your own business, and the successful company uses the smaller acquisition to complement its own products.
When a company buys another business to improve its own financial situation, the investor is usually left holding the bag. But, when a successful company pursues small and targeted acquisitions that don’t materially affect their own financial situation, then you’ve got a recipe for wealth creation.
Case in point, consider Perficient Inc. (NASDAQ/PRFT). This information technology company sells technology consulting services to mid-sized corporations. Recently, the company just bought Insolexen Corp., a business integration consulting firm, for approximately $13.4 million in cash and stock.
Perficient reported that the acquisition will immediately add to its own revenues and earnings. This is exactly what you want to see in the marketplace. Growth through acquisition with small, easily manageable businesses that complement your own product offering. Perficient is a great example of diligence in the marketplace and a great example of a wealth creating security.