Net-Net
Candlefocus EditorAt its heart, NCAVPS is used to evaluate stocks and to determine which ones are worth purchasing, based on their net current value of assets per share. This approach assumes that stocks trading for less than the value of their current assets may represent an opportunity to achieve a quick profit.
The basic premise of this investing strategy lies in the belief that all firms have intrinsic value, even those near bankruptcy, and that by being able to access the value of a company’s current assets, an investor can purchase a stock at a price lower than its fair market value. Ultimately, the goal of this approach is to find undervalued stocks that are priced below their NCAVPS and capitalize on the likely appreciation of the stock once it returns to its fair market value.
The net-net value investing strategy is generally considered to be a short-term investing strategy, and many investors use it to achieve quick profits from undervalued stocks. However, some proponents of the strategy argue that it can be used for long-term investments as well. Although critics of the strategy disagree, some successful stocks, which were acquired using the net-net investing strategy, have stayed profitable for extended periods of time.
For investors seeking quick returns on their investments, the net-net value investing strategy can provide an opportunity to capitalize on value stocks that are not correctly priced by the market. As with any investment, however, investors must carefully research and evaluate the stocks they are considering purchasing. Those who are able to identify mispriced stocks can benefit from the potential returns offered by the net-net approach.