This screen seeks to emulate the style of Bill Miller, manager of Legg Mason Value Trust. Miller’s strategy focuses on identifying securities that are trading below their intrinsic value, but differs from many value managers in that he focuses on cash earnings, not accounting earnings. He looks for firms that may be undervalued based on the present value of future cashflows, although this is not easy to screen for in detail. He says:
"Ideally, what we want is a company... that has tremendous long-term economics and those economics are either currently obscured by macroeconomic factors, industry factors, company-specific factors, or just the immaturity of the business."
Diversification is a crucial element in Miller’s strategy but he aims for diversification among the stocks it incorporates, rather than the sheer quantity. By focusing on companies that are being shunned by the market, this strategy takes on higher risks in hope of higher returns. The value moniker for his Fund is perhaps misleading because Miller has bought many Internet “growth” stocks.
You can read more about Miller's approach here. more »
This is the share price of the company divided by the free cash flow. Free cashflow is the operating cashflow minus capital expenditures. A more detailed definition would be (Earnings before interest and taxes * (1-Tax Rate) + Depreciation & Amortization - Change in Net Working Capital - Capital Expenditure)
Stockopedia explains P/FCF...
Free Cashflow is the amount left over a company can use to pay down debt, distribute as dividends, or reinvest to grow the business.
This ratio is similar to Price to Earnings, but omitting purely "paper only" expenses.
Some companies report high profits, but they can't turn those profits into cash! A company can't survive without cash, and if it can't generate it internally it will have to go to outside investors to support it, resulting in either share dilution or increased borrowing.
Free Cash Flow is calculated from the Statement of Cash Flows as Cash From Operations minus Capital Expenditures. Unlike earnings, it omits purely \paper only\"\"" expenses\""\""\"""""
Stockopedia explains FCF...
Free Cash Flow per share should be compared with Earnings per Share in order to understand whether a company is able to turn its earnings into cash or not! Ultimately every company needs to make cash to survive and without free cash flow a company will have to go begging to shareholders or resort to borrowing. The best companies are 'cash machines' - you should look for companies that make more free cashflow than earnings.
N.B. Cashflow can be very 'lumpy' as capital expenditures are not consistent from year to year. Also growing companies may have to invest heavily ahead of cashflow to keep up with demand.
The PEG ratio (Price/Earnings to Growth ratio) is calculated by taking the historic Price to Earnings Ratio (based on last year's diluted normalised Earnings) and dividing it by the consensus forecast EPS growth for the next year.
Unlike the Slater PEG Ratio or the Rolling PEG Ratio, this version does not use rolling PE ratio and growth rates, or incorporate the additional restriction that a companies must have 4 consecutive growth periods.
Stockopedia explains PEG...
The PEG is a valuation metric used to measure the trade-off between a stock's price, its earning, and the expected growth of the company. It was popularised by Peter Lynch and Jim Slater. In general, the lower the PEG, the better the value, because the investor would be paying less for each unit of earnings growth.
A PEG ratio of 1 is supposed to indicate that the stock is fairly priced. A ratio between .5 and less than 1 is considered good, meaning the stock may be undervalued given its growth profile. A ratio less than .5 is considered to be excellent.
Sales growth shows the increase in sales over a specific period of time. The CAGR formula is the following: (current year's value / value 5 years ago) ^ (1/5) - 1
NOTE: If the starting year's figure is zero, the CAGR is not defined.
Stockopedia explains Sales 5y CAGR %...
Sales growth is important because, as an investor, you want to know that the demand for a company's products or services will be increasing in the future.
It is important to distinguish however between organic sales growth and acquisitive growth. Growth rates differ by industry and company size. Sales growth of 5-10% is usually considered good for large-cap companies, while for mid-cap and small-cap companies, sales growth of over 10% is more achievable.
Market Capitalisation only takes into account the value of the company's shares (equity), it ignores the amount of debt a company may have taken on and therefore isn't the best indicator of the company's size. The Enterprise Value adds the net debt to the Market Cap and is a better indicator of the minimum amount that an acquiring company may have to pay to buy the firm outright.
The higher the ratio, the greater risk will be associated with the firm's operation. In addition, high debt to assets ratio may indicate low borrowing capacity of a firm, which in turn will lower the firm's financial flexibility. Like all financial ratios, a company's debt ratio should be compared with their industry average or other competing firms.
Companies with high debt/asset ratios are said to be "highly leveraged". A company with a high debt ratio could be in danger if creditors start to demand repayment of debt.
This indicates whether the company's main listing is in London. There are many dual listed companies on the London exchange who have their primary listing elsewhere. It's value is set to either 1 or 0 where 1 indicates a primary listing in London.
Stockopedia explains Is Primary Listing...
This can be a useful flag for identifying companies eligible for inclusion in tax efficient wrappers like ISAs and SIPPs.
To filter for primary listed stocks in the relevant exchange, set this value equal to 1, or to find stocks that are primary listed elsewhere set this equal to zero.