The Triple Tens Formula – New InsideArbitrage Screener

  • July 25, 2023

There are two activities I enjoy a lot. One of them is investing and the other one is building products. InsideArbitrage allows me to combine both and this year we have started rolling out a lot of projects we had in our pipeline. Last week we released our new Merger Calendar for premium subscribers and this week we are excited to launch a new stock screener that is free for everyone.

When I initially started out investing, I used to use screeners a lot. It was exciting to come up with a formula, generate a bunch of ideas and then refine the formula to build a narrow universe of companies to research. Over time I changed my idea generation process and for the most part now rely on event-driven strategies like merger arbitrage, spinoffs, insider transactions, etc. to generate ideas for me.

Special Situations + Screener

Considering the large number of ideas generated each week, I’ve always wanted the ability to tie a screener to these event-driven strategies. The beta version of the screener we are releasing today is the first step towards that goal. Over time we will incorporate this screener into our custom screens like the Double Dipper, Insider Cluster Purchases and Spinsider.

EV/Free Cash Flow

A metric I wanted to use and that I didn’t often find in screeners was enterprise value divided by free cash flow. The enterprise value of the company incorporates the cash and debt on the company’s balance sheet to give you an idea of what you are paying for the company once you include either net cash or net debt. Free cash flow is more instructive compared to GAAP earnings and is closer to “owner  earnings” that Buffett talks about.

The Triple Tens

We decided to build this EV/Free Cash Flow metric into our screener and I ran a screen last night that I like to call the Triple Tens. It looks for companies that:

  • trade at an EV/Free Cash Flow of no more than 10
  • have seen year-over-year revenue growth of at least 10% and
  • have seen their earnings per share also grow at least 10% year-over-year.

I excluded micro-cap companies by picking market caps over $300 million and then to limit highly leveraged companies, picked a maximum debt/equity value of 0.5.

As you can see below, the stock screener narrowed the results to 61 companies from a universe of 6,287 stocks. The columns displayed in the results reflect the criteria you selected in the screener and you can export the results as an Excel file for further analysis.

InsideArbitrage Triple Tens Screener

It was fascinating to see the Triple Tens came up with a large number of regional banks, coal companies, oil & gas companies and home builders. Given the way the screen was built, this is not surprising considering many of these industries are cyclical and are out of favor at the moment.

Sorting by the industry helped me identify companies that didn’t belong to these four industries including the fertilizer company Mosaic (MOS), the largest egg producer in the U.S., Cal-Maine Foods (CALM) and the tax preparation company H&R Block (HRB). Value investors would recognize that Mosaic and H&R Block have been perpetually cheap for several years and are sometimes considered value traps. With the current situation in Ukraine with Russia bombing ports in the country and disrupting the export of agricultural commodities, Mosaic might start to look more interesting in the coming weeks.

Any of the columns can be sorted ascending or descending. Clicking on the little + sign to the left of the symbol will bring up key statistics, insider transactions, buyback announcements and more for the company. Clicking on the symbol will take you away from the screener and to the quotes page for the company.

A note of caution. Financial data, depending on the source, can sometimes be erroneous and it is best to verify the numbers independently before relying on them. Screeners are also backward looking and they are often a starting point for further research.

I would love to get feedback from you so we can iterate and build a more powerful screener over the next few months. Happy hunting.