4 Simple Quality Checks For Your ASX Small Cap Stocks

Here’s a simple checklist that can help you assess the quality of a business you are looking at. Are all its websites secure?

1. Are its websites secure?

One company that is on the borderline for quality that I own is Paygroup (ASX: PYG). I find it irritating that its investor facing websites don’t have an SSL certificate, as you can see below:

Now, the company’s customer facing website, https://www.payasia.asia/, is fully secure, but the anomaly for its investor facing website essentially shows either that it does not respect small investors very much, or it has low organisational competence (and is incapable of ensuring websites are secure). Either way that is bad.

2. Evidence of Employees

It might sound funny to say it, but many small listed companies don’t even have convincing evidence that real people work there in practical roles. Alternatively, dodgy companies might acquire a business that seems not to exist except on paper (this is very common). Check that employees exist by finding them on linkedin or finding mixed revues on Glassdoor (5 star reviews tend to be fake).

Below is the kind of glassdoor review I want to see to be sure something is a genuine functioning workplace!

3. Evidence of Customers

You’ll be surprised how difficult it is to find independent evidence of customers of a business to business software product. For example I can’t find any evidence of Vault Solo being deployed in the wild. That doesn’t mean it doesn’t exist, just that I can’t find it. I can gain more confidence once I have independently observed product use in the wild.

In comparison, when I was first researching Pro Medicus (share price around 80c) I had no trouble independently verifying customer uses of its then new software Visage, as you can see in the example below.

4. No fake product reviews

If you can see a string of 5 star reviews for a company’s product, cross check the names of the reviewers. When we did that with Vault Intelligence (ASX: VLT) we could see that Verdon Kelliher, a senior Vault employee (along with a few other Vault employees) had left a fake review on the google app store.

Verdon Kelliher Vault Intelligence

Key Lesson

These are just four simple, fast and easy processes you can go through to get a quick look at the quality of a small business you might want to invest in. By no means are they the end of the story, but you’d be surprised how frequently beginning investors fail to cross check company announcements with what is independently observable. If a company fails all three checks described above, my bet is that it is probably low quality, especially if it has no SSL on its primary customer facing website. However, I wouldn’t put too much weight on any individual check.