Paul Andreola is a highly regarded small cap investor with over 25 years experience in the industry. Similarly to Ian Cassel, the Canadian has a strong track record of discovering tiny stocks with huge potential that capture gains of 50% to 200%. Mostly he finds these investment opportunities manually through studying financial statements, industry reports and interviewing management.
Previously Andreola worked as a stockbroker for 10 years, again focusing on small caps which is unusual for a broker. He also co-founded two public companies and is currently CEO of NameSilo Technologies – all technology companies. This unique experience of starting businesses and raising finance gives him a unique edge over other investors. He understands how crucial management teams are and the pitfalls they have to avoid to scale a business.
On The Acquirers Podcast, he mentions a specific checklist he uses to analyze micro caps and if he’s fortunate to hold them long term, it can result in some explosive returns! Xpel Technologies, an auto parts manufacturer and distributor, happened to be one of these big winners. He discovered Xpel trading at 20 cents in 2013, the stock ended up becoming a 100-bagger from the prices he was buying it at. He sold Xpel in the 10’s but now trades at $52.
Four Main Criteria he looks for:
1. Hitting a new 52-week high
Contrary to other investors that look to buy shares at a discount, Andreola stated once he started buying stocks making new 52-week highs, the performance of his portfolio went crazy. He went from averaging 10-15% per annum to 100%.
2. 25% Growth Per Year in Revenue and Earnings
Andreola looks for companies growing at least 25% per year on a revenue and per share basis. The key aspect is finding hyper growth stocks with strong fundamentals behind them and are at an inflection point. They could have just become profitable or close to it.
3. Look for Something New
“You want to look for new things. New management, new products, new territories, new something,”
New management, products, and territories should catch investor interest and will potentially push the share price higher.
4. Low institutional ownership
Andreola says the idea behind this step is very simple. You want to get in early before institutional investors. Once they hear about the stock and like the company, they’ll push the shares higher with their large cash coffers.
Small Cap Discoveries
Small Cap Discoveries is a newsletter/investing community run by Andreola and Trevor Treweeke. Their service focuses on finding high quality micro caps long before everyone else. In fact, in the last five years, he’s brought subscribers seven ten baggers – meaning they got ten times their investment.
The companies profiled typically trade on Canadian exchanges and of course, barely anyone follows them. These companies can go undiscovered for years and with a bit of luck have the potential to become ten baggers.
Small Cap Discoveries isn’t cheap as they charge $249 per quarter for access to their premium research and community. To attract new members they now are offering a one month trial for $10 so new members can try out the service before making a big commitment.
Considering he mainly invests in Canadian micro caps it’s a surprise he has no resource stocks in his portfolio. Paul seems to prefer companies in the tech and biotech space with reccurring revenue.
I signed up for a month of Small Cap Discoveries to see what all the hype was about. Below, is their portfolio as of December 23rd 2020, total returns of 149.2% on his current holdings.