Net-net stocks are some of the market’s deepest undervalued opportunities, which is why some investors have consistently beaten the market by investing in net-nets.
In this guide, we’ll walk through what net-net stocks are, how to analyze net-net stocks, and where you can find high-quality net-nets that can deliver outsized returns.
Table of Contents:
- What Are Net-Net Stocks
- Why Net-Net Stocks Outperform
- Why Net-Net Stocks Still Exist Today (there are hundreds of them)
- How to Calculate Net Current Asset Value (NCAV)
- What to Look for in a Net-Net Stock
- Quantitative Criteria
- Qualitative Criteria
- Using TIKR to Find and Analyze Net-Net Stocks
- Risks of Investing in Net-Net Stocks
Let’s dive in!
What Are Net-Net Stocks?
Net-net stocks are some of the rarest and deepest value opportunities in the market. They’re stocks trading below their net current asset value (NCAV), which is a conservative estimate of what the company would be worth if it liquidated its short-term assets and paid off all liabilities.
This idea comes from Benjamin Graham, the father of value investing. He believed that if you could buy a company for less than its current assets minus all liabilities, you were getting the business for free with an additional margin of safety baked in.
In today’s market, net-nets typically show up in the small-cap and micro-cap space. They’re too small for institutional investors to buy, and they’re often misunderstood by the broader market. While many of these businesses face near-term challenges, the right filters can help separate attractive opportunities from permanent losers.
Why Net-Net Stocks Outperform
Net-net stocks have a long history of delivering outsized returns, and two of the greatest investors of all time, Benjamin Graham and Warren Buffett, proved just how powerful this strategy can be.
In his famous book The Intelligent Investor, Graham shared that his portfolio of net-net stocks produced returns of 20% annually, far exceeding the market averages at the time.
One of Graham’s most famous students, Warren Buffett, took this strategy to heart in his early career. Before Buffett became known for buying wonderful businesses at fair prices, he was a deep value investor hunting for “cigar butts,” which were companies so cheap that even one last puff (a small rebound in their price) could deliver big gains.
Buffett’s partnership years were filled with net-net investments. He once remarked that if he were managing a small sum, like a few million dollars, he’d still be buying cheap stocks like net-nets because of how effective the strategy is. His partnership achieved about 29.5% annual returns from its inception in 1956 until he closed it in 1969 largely by investing in severely undervalued companies, like classic net-nets.
Graham and Buffett realized that when you buy a stock for less than its liquidation value, you don’t need great news to make money. Since you’re buying at such a deep discount, your downside is often limited, while just returning to the stock’s fair value can deliver substantial returns.
Net-Net Stocks Still Exist Today (there are hundreds of them)
Many investors assume net-net stocks no longer exist. In large-cap markets, that’s mostly true. But go down the market cap spectrum and into underfollowed global regions, and you’ll still find net-nets hiding in plain sight.
These stocks often appear after market corrections, during economic stress, or in sectors facing temporary headwinds. When the market overreacts, prices can fall below liquidation value, which can create opportunities for disciplined investors.
Evan Bleker, founder of Net Net Hunter and widely regarded as “the modern-day Ben Graham,” has shown that these opportunities can still deliver strong returns. His strategy adds real-world filters on top of Graham’s original formula, helping investors avoid value traps and focus on stocks that can deliver high returns.
Find real-life net-net stocks that can outperform today with TIKR (It’s free) >>>
How to Calculate Net Current Asset Value (NCAV)
The formula for calculating a stock’s Net Current Asset Value is simple:
NCAV = Current Assets – Total Liabilities – Preferred Stock
You’re essentially estimating what would be left for shareholders if the company were liquidated today. Importantly, this method only includes current assets, which are things like cash, receivables, and inventory. It ignores long-term assets like property or goodwill because they’re harder to value.
Here’s a quick example:
- Current Assets: $100 million
- Total Liabilities: $60 million
- Preferred Stock: $5 million
That gives you an NCAV of $35 million. If the company’s market cap is $25 million, you’re buying the stock at a discount to what the balance sheet says it’s worth even before assigning any value to future earnings or the underlying business.
Many deep value investors use an even stricter rule: only consider a stock a true net-net when it trades at two-thirds or less of its NCAV. That extra margin provides a buffer in case the asset values are overstated or the business deteriorates further.
TIKR makes this easy. You can screen global markets for stocks trading at less than Net Current Asset Value. From there, the real analysis begins.
Analyze stocks quicker with TIKR >>>
What to Look for in a Net-Net Stock
Even with stocks trading below liquidation value, it’s important to analyze these companies to make sure they’re high-quality businesses.
If you hold a diversified portfolio of net-net stocks, it’s entirely possible to consistently beat the market over the long term.
Here are some key criteria to find high-quality net-net stocks:
Quantitative Criteria
The goal is to identify net-nets with strong balance sheets, tangible assets, and enough runway to survive until the stock trades at its intrinsic value again.
Here are some quantitative filters to help you find high-quality net-net stocks:
- Low Price to NCAV (<0.75)
The lower the price relative to the business’s net current asset value, the better your margin of safety. A wide discount also gives you more upside, even if the company never fully recovers. It’s recommended to buy stocks trading at less than 75% of NCAV. - Large Current Ratio (>1.5)
A high current ratio (current assets divided by current liabilities) provides a strong buffer against insolvency or bankruptcy. The larger the ratio, the more flexibility the company has to absorb losses without threatening its NCAV. - Adequate Past Earnings or a Clear Catalyst
Look for businesses that have earned strong profits in the past, or have a clear event on the horizon that could unlock value. You’re looking for stocks that can benefit from mean reversion, with a decent chance of trading at a higher price in the future. - Small Market Cap
The smaller the company, the greater the potential for mispricing. Institutional investors typically avoid micro-caps, which gives individual investors an edge if they’re willing to buy stocks with low market caps. Many of the best-performing net-nets are found in the sub-$100 million market cap range. It’s perfectly normal for strong net-net stocks to have a market cap of less than $10 million. - Low Price to Net Cash
Net cash means that a company trades for less than its cash and equivalents minus all liabilities. If a company is trading below its net cash value, you’re essentially buying the business for less than the value of just its cash. These setups offer the most tangible margin of safety. - Low/No Debt (Debt/Equity <0.5)
Debt is one of the leading causes of bankruptcy, so avoiding companies with leverage removes one of the major sources of risk in net-net investing. Companies with little or no debt have more time for turnarounds to play out. If there is debt, it’s best to look for a company with a debt/equity of less than 0.5. - Low or Positive Burn Rate
The burn rate in net-net investing measures the rate at which a company loses NCAV. Ideally, you’d like to buy net-nets that increase NCAV every year, but businesses with a low NCAV burn rate can still be good investments. A fast burn rate can be a real issue, because that can erode the business’s margin of safety.
Qualitative Criteria
Numbers tell part of the story. The qualitative factors help to look at the company’s story and avoid any businesses that are likely to disappoint investors.
- Avoid Financials, Real Estate businesses, ADRs (American Depositary Receipts), and Funds
It’s recommended to avoid these industries because they tend to have complex or opaque balance sheets, which makes it harder to estimate the company’s true asset value. It’s best to stick to simple business models like manufacturing, retail, or services, where investors can easily understand the business’s operations and assets. - No Dilutive Financing
It’s usually best to exclude businesses that are selling shares. If a company is raising money by issuing stock while the stock is dirt cheap, it’s destroying value for shareholders. Since we’re looking for businesses with strong balance sheets with strong current assets, the business should already have plenty of liquid capital and shouldn’t need to rely on selling shares to raise financing. - Active Operations or a Defined Liquidation Strategy
It’s important the company has active operations and is a legitimate business. Steer clear of zombie companies that don’t have operations. However, if a company is planning to sell some of its assets, this could be a catalyst for a stock to realize its intrinsic value, and might make it worth further research. - Insider Ownership
If management owns a meaningful stake in the company, they’re more likely to act in shareholders’ interests. High insider ownership also reduces the risk of value-destroying decisions. - Past Price Above NCAV or a Visible Path to Recovery
Has the stock traded above NCAV in the past five years? If yes, that’s a sign the market once valued the company more highly, and may again if the fundamentals improve. - Bonus: Visible Catalyst (Optional, but Preferred)
Catalysts are events that help the company’s share price improve. These can include asset sales, activist involvement, favorable industry conditions, strategic reviews, or management changes. Catalysts certainly aren’t required because net-nets are already so cheap, but they can help to speed up how quickly a stock reaches its fair value. - Bonus: Company is Buying Back Stock
Share repurchases signal that management believes the stock is undervalued. It also immediately increases the value of each share by reducing the number of shares outstanding. - Bonus: Insider Buying
When company insiders (management, directors, or shareholders with over 10% ownership) are actively buying the stock, that’s a strong vote of confidence. On the flip side, insider selling, especially at depressed levels, can signal problems.
The best net-net opportunities often have most of these quantitative and qualitative traits.
Yes, they might be the highest-quality businesses, but they also have:
- Low/No debt
- Ridiculously cheap valuation
- Hopefully increasing tangible asset value each year
Even without a catalyst, it’s likely that these stocks can rerate higher, and investors can make market-beating returns by holding a diversified portfolio of net-nets.
Using TIKR to Find and Analyze Net-Net Stocks
Most investors never find net-nets because they don’t know where to look.
These stocks rarely show up on mainstream screens because they’re often international stocks with market caps below $100 million.
TIKR has a powerful screener that can help you find these companies and quickly analyze them before going to the company’s public filings.
Net-Net Screen
Set filters to target:
- Price-to-NCAV between 0 and 0.75
- Market cap under $100 million
- Not in China
- Not in biotechnology, Financials or Real Estate
- Current ratio greater than 2
- Total debt/equity less than 0.2
- With revenue growth over the past 3 years
This is what it would look like to set these filters on TIKR:
Believe it or not, this screen turned up 199 stocks, including some American companies. These are high-quality net-nets that are likely trading at a big discount to intrinsic value:
From there, you can use TIKR to:
- Compare historical valuations
Check if the stock traded above NCAV in recent years. If it has, that suggests the company is capable of a rebound when sentiment improves. - Check Net Current Asset Value over time
You can use TIKR to check the company’s balance sheets over time to see if the company’s net current asset value has held steady or increased over time. Also, you can view the company’s P/NCAV over time to see if it’s historically cheap. - Monitor insider activity
Look for insider buys, which signal that management sees value in the shares. Avoid companies with insider selling or heavy dilution. - Benchmark competitors
Use TIKR to compare the company’s balance sheet and valuation to similar small-cap firms. That gives you context on whether most stocks in the industry are currently cheap.
TIKR pulls all of this together in one place, saving you time and making it easy to find stocks that can consistently outperform the market.
For net-net investors, it turns a hard-to-execute strategy into something repeatable and research-driven.
Find & analyze net-net stocks all in one place with TIKR (No risk, it’s free to try) >>>
Risks of Investing in Net-Net Stocks
Net-nets can deliver strong returns, but they also come with real risks.
These are often distressed or ignored businesses for a reason, and not every cheap stock will end up returning back to a higher price.
Understanding the common pitfalls can help you avoid permanent capital losses:
- Illiquidity
Many net-net stocks trade with limited volume and wide bid-ask spreads. It can be difficult to enter or exit positions without impacting the price, especially in thinly traded micro-caps. - High Bankruptcy Risk
Some companies trade below NCAV because they’re burning cash rapidly or are already in financial distress. That’s why it’s important to look for net-nets with low or no debt. - Lack of Catalysts
Sometimes, a stock can remain undervalued for years if it doesn’t have a reason for the market to re-rate it. If the business isn’t improving or management shows no intent to unlock value, your capital may sit idle. This is why it’s important to invest in a diversified portfolio of net-nets if you’re interested in net-net investing, because there are bound to be underperformers that look like promising net-nets. - Management Misalignment
Poor governance can be common in small companies. Management may prioritize salaries or side projects over shareholder returns. If there’s no insider ownership or share buybacks, that’s a warning sign. - Value Traps
Some businesses look cheap but are simply in permanent decline. They may never recover, and NCAV may continue to erode quarter after quarter. These are the stocks that stay cheap for a reason.
Diversifying across multiple net-nets can also help smooth results since performance for individual net-nets may vary widely.
FAQ Section:
What is a net-net stock?
A net-net stock is a stock that trades below its net current asset value (NCAV), which is calculated as current assets minus total liabilities and preferred stock. These are deep-value opportunities, and the investing strategy was originally popularized by Benjamin Graham.
How do you calculate net current asset value?
To calculate NCAV, subtract total liabilities and preferred equity from current assets. The formula is:
NCAV = Current Assets – Total Liabilities – Preferred Stock
Stocks trading below 2/3 of their NCAV are typically considered true net-nets.
Are net-net stocks still relevant today?
Yes, especially in micro-cap and international, underfollowed markets. While rare, net-nets still appear, particularly during market downturns or in regions with limited analyst coverage.
What are the risks of investing in net-net stocks?
Common risks include illiquidity, poor management, rapid cash burn, and lack of catalysts. Not every net-net is a good investment, which is why screening for financial health and qualitative factors is important.
How can I find net-net stocks?
You can use tools like TIKR to screen for companies with low price-to-NCAV, high current ratios, and low debt. From there, apply qualitative filters such as insider buying, operating history, and catalysts to refine your list.
TIKR Takeaway
Net-net investing isn’t about finding perfect businesses. It’s about identifying deeply mispriced assets with limited downside. The strategy requires taking a data-driven approach and a willingness to act when others won’t.
Tools like TIKR make the process more efficient by helping you screen, analyze, and monitor net-net opportunities all in one place.
The TIKR Terminal offers industry-leading financial data on over 100,000 stocks, so if you’re looking to find the best stocks to buy for your portfolio, you’ll want to use TIKR!
Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any stocks mentioned. Thank you for reading, and happy investing!
