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At Petra Capital Management, we use our in-house developed filtering process and tool to build an inventory of ideas from thousands of publicly traded and private companies. Our filtering process encompasses superior utilization of invested capital, stable business model, and capable and proven management. A company creates economic profit to the extent its returns on capital exceed its cost of capital. Therefore, we look for companies that have a long history of deploying large amounts of capital at high rates of return.

Many insights are to be gleaned from the historical record. Exceptional historical performance, however, has predictive value only if the business model is stable – and the moat that protects the business from the ravages of competition (high barriers to entry, indelible franchise, unassailable brand, etc.) persists as a strong protector. Therefore, we look for companies that aren’t subject to rapid change and/or don’t participate in an industry with an uncertain competitive structure, among other things.

We look for management teams that act like co-owners of the business, whose primary motivation is to grow the per-share value of the business over the long term. We prefer management that is at the behest of an independent, well-rounded board. Further, we favor management that has had some hand in the past performance of the business.

In addition to implementing the above-mentioned filtering process, we generate investment ideas from a number of sources, including general business publications, trade publications, computer screens and our vast network of business contacts.