Quality and value can be the main drivers of this small-cap stock

Shares in Doro Ab (STO: DORO) is currently trading at 48.1, but a key question for investors is how the economic uncertainty caused by Covid-19 will affect the price.

Part of the answer is about judging whether the stock is well placed to withstand financial shocks and ride out market volatility. To do so, it is worth looking at its profile to see where its strengths are.

The encouraging news is that Doro Ab has at least some of the features often associated with thaw influential drivers of return on investment: high quality and one relatively cheap valuation.

To understand where it appears, here is a closer look:


Purchase quality at a reasonable price

Good quality markets are loved by the market because they are more likely to be solid, reliable companies. Profitability is important, but it is also the financial strength of the company. A track record of improving the economy is important.

One of the quality goals for Doro Ab is that it passes 6 of 9 economic tests in Piotroski F-Score. The F-Score is a worldwide accounting-based checklist for finding stocks with an improved financial health trend. A good F-Score suggests that the company has strong signs of quality.

While quality is important, no one wants to pay too much for a stock, so an appealing assessment is also important. With a weaker economy, earnings forecasts are unclear across the market. But there are some valuation measures that can help and one of them is the earnings dividend.

Earnings dividend compares a company’s profit with its market value (calculated by dividing its operating profit by its company value). It gives you a total value of the stock (including its cash and debt), making it easier to compare different stocks. In percent, the higher the earnings dividend, the better the value of the stock.

A rule of thumb for a reasonable earnings dividend can be 5%, and the earnings dividend for Doro Ab is currently 8.88%.

In summary, good quality and relatively inexpensive valuations are references to the stocks that are some of the most appealing contrarian value investors. It is among these stocks that genuine mis-pricing can be found. Once the market has recognized that these quality companies are for sale, these prices often return.

What does this mean for potential investors?

Finding good quality stocks at cheap prices is a strategy used by some of the world’s most successful investors. But be warned: these factors do not guarantee future returns, and we have identified some areas of concern Doro Ab which you can find out about here.

Alternatively, if you would like to find more stocks that show signs of having strong quality and value, just come and look at this Quality and value screen.

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