About

Ranger Investment Management, LP (“Ranger”) is a traditional, long-only equity investment manager that offers Small, Micro, and All Cap Growth strategies. Ranger Investment Management, an SEC registered investment adviser, was formed in 2003 and is an affiliated manager of Ranger Capital Group.

Ranger’s strategies aim to preserve and grow capital by utilizing a bottom-up, fundamental research process to identify growing, high quality companies that can be purchased at attractive valuations.

Investment Process

Security Selection

Ranger uses a disciplined, consistent investment approach to both security selection and risk management. Ranger’s investment team searches for quality growth companies by implementing a bottom-up, fundamental research driven security selection process. The focus in the research process is on identifying small capitalization U.S. companies characterized by accelerating revenue and earnings growth, high recurring revenues, strong balance sheets and free cash flow generation.

In addition to quantitative analysis, careful consideration is given to qualitative analysis with respect to issues such as, judgment of the management team, accounting practices, corporate governance and the company’s competitive advantage. Once these quantitative and qualitative characteristics are analyzed, the investment team then seeks to determine whether a company is undervalued and whether there is sufficient upside to the stock price to warrant an investment.

Once a security is bought into the portfolio, it is subject to regular risk management reviews of the portfolio. Ranger’s proprietary risk management tool, the Suspect List , is an effective tool that is used to monitor changes to a company’s fundamentals and to isolate companies that violate the firm’s sell disciplines. This review process seeks to identify problem stocks early and enhances performance by removing them before they become significant problems for the portfolio.

Ranger’s research process focuses on identifying high quality, high-growth companies with market capitalizations ranging from:
  • Within the market cap range of the Russell Microcap Growth Index at the initial time of purchase for the Ranger Micro Cap strategy;
  • $100 million to $2 billion or within the market cap range of the Russell 2000 Growth Index at the initial time of purchase for the Ranger Small Cap strategy;
While Ranger does not employ static screens, the investment team does seek to identify companies with certain financial and qualitative characteristics. Financial characteristics generally include, but may not be limited to:
  • High degree of recurring revenue
  • Steady and/or accelerating sales growth (10-20%) and steady earnings
  • Growth (15-25%)
  • Solid balance sheet
  • Strong free cash flows
  • Stable or expanding margins
  • Superior return on equity (ROE) and return on invested capital (ROIC)
By selecting companies that exhibit these characteristics, the investment team seeks to eliminate speculative, unprofitable, highly levered and/or distressed company securities from the universe of stocks it is evaluating. The investment team also looks for companies that possess the following qualitative characteristics:
  • Conservative accounting practices
  • Seasoned management team with high corporate integrity
  • Sustainable competitive advantage and the ability to grow market share
  • Unique demand drivers and/or a large addressable market with barriers to entry
  • Sound corporate governance

Portfolio Construction

Once it is determined that a company possesses the desired characteristics, a decision is made with respect to whether or not to include that company’s stock in a portfolio. During this analysis, the investment team considers the following factors when constructing the optimal portfolio for its clients:
  • Opportunity Set – Stocks are assessed on individual merits as well as on a relative basis to both existing holdings and other stocks competing for inclusion in the portfolio.
  • Valuation – Valuation is used to determine the fair market value of each potential investment as well as the appropriate time to add a position to the portfolio. The investment team uses a variety of methodologies to value a company such as, absolute and relative P/E and P/CF ratios, P/E and P/CF relative to growth rate, EV / EBITDA and FCF yield. Stocks trading at attractive valuations are eligible for purchase, while other stocks will remain on the watch list until their valuations become compelling.
  • Risk Management – The investment team uses Long Manager, a proprietary, real-time monitoring system to evaluate an individual stock’s impact on the overall portfolio. When a new stock is added to the portfolio, investment team members can immediately determine how the inclusion of that particular company impacts portfolio characteristics with respect to issues such as, sector and industry weightings and whether the addition will trigger a violation of any of Ranger’s internal guidelines. Long Manager is also used to evaluate the proposed holding with regard to specific client imposed restrictions to prevent possible violations.
  • Technical Factors – Technical factors are considered in conjunction with fundamental factors to determine the appropriate initial weighting at the entry point into the portfolio.
A company’s quality, revenue and earnings visibility, competitive advantages, and most importantly, its upside to target ultimately determine the initial position size. The entire investment team discusses and debates these issues; however, the Portfolio Manager has the ultimate decision-making authority and oversight for all Ranger strategies. Typically, an initial position size starts at 1% -1.5% of the portfolio. The maximum position size is 5%.

Risk Management

Ranger implements a rigorous risk management process with respect to the growth-oriented portfolios it manages. While the entire investment team monitors risk on a daily basis, the Portfolio Manager is ultimately responsible for risk management.  Ranger monitors established investment guidelines such as, portfolio diversification requirements, sector/industry and holdings limits as well as client-specific restrictions using Advent Moxy, the firm’s order management system.  The investment team also uses the information generated by three proprietary risk management tools it refers to as, Long Manager, Earnings Quality Report and the Suspect List to monitor its portfolios.

Ranger’s Long Manager is a real-time analytical tool the investment team uses on a daily basis to monitor individual stocks and client portfolios.  Long Manager provides detailed, up-to-the-minute market information on behalf of all portfolio holdings.  It also identifies securities that violate internal guidelines or are approaching their price targets.  Long Manager also generates performance attribution daily and highlights sector and industry weightings relative to those of the relevant Russell index. In addition, the program provides detailed statistics for all stocks held in the portfolio.

The investment team also uses Long Manager  to evaluate an individual stock’s impact on the overall portfolio. When a new stock is added to the portfolio, the investment team can instantaneously determine how the inclusion of that particular company impacts portfolio characteristics such as sector and industry weightings and whether the addition triggers a violation of any of Ranger’s internal guidelines. Long Manager also enables investment team members to assess  client imposed restrictions to help prevent possible violations.

The Earnings Quality Report enables investment team members to monitor a series of margins, ratios, and earnings quality metrics to detect early warning signs of a change in a company’s fundamental financial position and earnings risk.  The report measures the various ratios that are key to EPS growth, unusual changes in margins, decreases in accrual profits and cashflow, organic growth, and changes in working capital.  Once this analysis is completed, items highlighted as concerns are disseminated to the investment team for discussion, at which point decisions are made and action taken to address the concerns.

As part of its portfolio review process, Ranger uses a proprietary application called the Suspect List to identify potential candidates for sale. The objective of this application is to identify extremely successful, slowly deteriorating, or possible blowup stocks within the portfolio while seeking to simultaneously remove the potential for “emotional attachment.”