M. Shaw and how he evaluates a companyThis lead in from an interview with the Energy Report gives a good take on Malcolm Shaw, his words in this makes it very apparent of why he likes VLE. I think there is a pretty big disconnect right now with VLE and the market. Looking forward to the news on the testing as I am sure are all longs.
The Energy Report: As a retired sell-side analyst and hedge fund VP, what do you look for in selecting and analyzing investment situations?
Malcolm Shaw: My background is actually geology, but over time I got pulled into finance. There was an advantage to having geological or technical knowledge, particularly in evaluating small- and mid-cap companies. Technical knowledge aside, the key for me is good management, and I've met hundreds of management teams over the years. Good management with sector expertise is always my first screening tool. After that I like companies that are under covered or generally unloved by the street because they tend to be where the market is less efficient. I'm not really going to add any value talking about names like Exxon Mobil Corp. (XOM:NYSE) or Encana Corp. (ECA:TSX; ECA:NYSE) simply because the information is so well distributed and the market is more efficient in larger caps, but not in smaller caps.
Next, a company should have a good balance sheet, because if it doesn't, that adds a layer of financial risk. Then you need to have an asset that can have a material impact on the company's value in the market, either through discovery or the underlying asset value. Sometimes you see junior companies with great assets become exceedingly cheap relative to the underlying project value. You see that when they get hurt on spot commodity prices or short-term news events and yet the underlying value of the asset is clear. That's where you can get some pretty big disconnects. That's another place where I like to focus: In early-stage projects, understanding the data as soon as it is available can be a real advantage too, though a speculative component always remains.