The market pays less than the short-term assets on the balance sheet: net-nets are the most extreme form of undervaluation, screened automatically and updated daily.
Save the strategy and StockScorer checks its rules for you every day. You'll get a heads-up whenever a stock crosses the upper or lower score threshold.
Once enough history is available, the backtest chart for this strategy will appear here.
Every stock runs through the same disclosed rules. The points add up to a score, traceable down to the individual rule.
Each rule checks a metric against a threshold, for example ROE above 15 %.
You decide how much each rule counts: from +1 to +3 or −1 to −3.
The sum is the score. Above the upper threshold: a high match with the profile.
These terms describe only the match with the criteria, not a recommendation to buy or sell.
Market capitalisation is measured against net current asset value (NCAV): below 66% earns full points.
Two tiers: deep asset discount (below 66% of NCAV) and trading below liquidation value (66–100%).
Positive net income protects the discount; heavy losses consume it and cost points.
Small and mid caps only: the approach is structurally not applicable to large caps.
For hard-nosed deep-value investors with strong nerves: net-nets are almost always in crisis, prices swing hard, and individual positions can fail. Historically, a portfolio effect compensated for that, not the single bet.
A net-net is a stock whose market capitalisation sits below its net current asset value (NCAV), current assets minus all liabilities. Fixed assets, brands, patents: all thrown in for free. This deep-value discipline was established by Benjamin Graham and finds its hits almost exclusively among small and mid caps in fundamental crises. Multi-billion companies never trade below liquidation value, which is why large caps are excluded by rule here. The cash-burn check is decisive: a discount to substance is worthless if ongoing losses consume it faster than the market changes its mind.
The NCAV is deliberately conservative: current assets (cash, receivables, inventory) minus all liabilities, long-term debt included. If the market capitalisation is below 66% of this value, Graham's classic margin of safety applies: +3 points. Between 66 and 100% of NCAV still earns +1. If the market capitalisation exceeds even the total current assets, there is no asset coverage left: −1.
The cash-burn check complements the valuation side: positive net income adds +1; an annual loss of more than 5% of the market capitalisation costs a point, because it burns exactly the substance the investment thesis rests on. The upper threshold is 3 points for mid caps and 4 for small caps; large caps never reach it by design.
Market cap below 66% of NCAV: deep asset discount (+3). Market cap between 66 and 100% of NCAV: below liquidation value (+1). Market cap above total current assets: no asset coverage (−1).
Net income positive: cash-burn check passed (+1). Annual loss above 5% of market cap: substance is melting (−1).
Size-class rule: only small and mid caps are scored; for large caps a knockout rule forces the lowest classification, because the approach is not applicable there.
Net-nets are statistically one of the highest-returning value disciplines, and one of the most uncomfortable: the companies are small, illiquid and almost always wrapped in bad news. Hits are rare; in strong bull markets the list can be practically empty. That is not a bug but a market signal.
Calculation notes: "deeply negative" in the sense of the cash-burn check means an annual loss above 5% of market capitalisation, a documented concretisation of the original criterion. For stocks whose trading and reporting currencies differ, the ratio of market cap to NCAV can be slightly distorted. In the backtest the NCAV is reconstructed look-ahead-free from the annual balance sheets.
For experienced investors who want to systematically watch a small, specialised deep-asset segment: as a complement, not the core of a portfolio.