Disclaimer: This content is for informational purposes only, not investment advice. I may own equities mentioned in this article. Investing involves risk, so always do your own research before buying or selling any securities.
I might be a bit biased, but Sweden might have the best quality-investing culture on earth (this is the country of Investor AB, Atlas Copco and a whole family of quiet serial acquirers like Lifco and Addtech (if you know, you know)). The funny thing about Swedish quality investors is that they’re used to paying up. A great Swedish compounder almost never looks cheap, because everyone in Stockholm already knows it’s great. So whenever I talk Japan with one of them I get the same reaction, a long pause and then “wait, it trades at WHAT?”
So I did what any smart value-investor would do: I took advice from my Swedish value investor friends and turned them into a screener, and ran it across the whole Tokyo market to see if there’s any value investments left.
There is.
How my Value-Investing screener work
The screen scores every Japanese company on return on capital employed (ROCE), operating margin, return on invested capital averaged over five years, five years of revenue growth and the equity ratio, then on price through P/E, EV/EBIT and P/B, with net cash and dividend yield in the mix too. It all rolls into one percentile, where 1 is best and 100 is worst.
127 companies survived the minimum bars. And the medians are a bit ridiculous: 22% ROCE, a 15% operating margin, revenue up 62% over five years, an equity ratio of 71%, and 7.4x EBIT. All 127 have more cash than debt!
Read that again, the typical company on this list earns a 22% return on its capital, has grown for five years and has no net debt, and you can buy the entire business for about seven and a half years of operating profit.
