Kirkpatrick’s Value Screen combines quantitative filters for relative price strength and relative reported earnings growth, with a value criterion - using relative price-to-sales percentiles, Kirkpatrick arbitrarily selected only those stocks in the 30th percentile or lower.
Despite the success of his Growth Model, Kirkpatrick was concerned about the fact that its performance had occurred during one of the strongest bull markets in history. He wanted to strengthen the system against capital loss to protect against the inevitable market reversal. He believed relative price strength would not be effective during a market downturn and could lead to significant capital losses. For Kirkpatrick, the alternative was to reduce the risk of the portfolio by beginning with a group of stocks with low valuations.
Kirkpatrick also looks for growth companies with market capitalizations of at least $500 million and share prices of at least $10.
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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.
This measures the share price vs. the 130 Day Moving Average (130d MA) expressed as a percentage difference. A negative number indicates a share price trading below the 130d MA
The 130d MA is a long term moving average calculated by dividing the sum of the security's average closing price over the last 130 trading days by 130. It is effectively the 6 month or 26 week moving average.
A price-to-sales ratio, or a stock's market price per share divided by the revenue generated by sales of the company's products and services per share. Some argue that, since sales figures are less easy to manipulate than either earnings or book value, the price-to-sales ratio is a more reliable indicator of how the company is doing. However, this measure was misused during the dot com years to promote companies with no earnings or profits.
Some argue that, since sales figures are less easy to manipulate than either earnings or book value, the price-to-sales ratio is a more reliable indicator of company value.
When EPS are negative or depressed temporarily the Price to Sales ratio can be a more useful indicator than the PE Ratio, and a low P/S can indicate a higher profit potential if the stock recovers. Some commentators have called it 'The King of the Value Factors' and look for P/S ratios of significantly less than 1.
It should be noted that the P/S ratio was abused during the dot com years to promote companies with no earnings or profits.