This screen implements the criteria laid out by Kenneth Fisher in his 1984 Dow Jones book, "Super Stocks". The main criteria used by Fisher was the price-to-sales ratio (PSR). Fisher argued that stocks with PSRs below 1.5 are good value while the real winners are those with PSR values under 0.75. The exception to this was “smokestack” industries which don’t generate a lot of excitement, for which the PSR target should be between 0.4 and 0.8.
The other criteria he highlighted were:
Profit margins - He wanted three-year average net margins to be at least 5%
The debt/equity ratio - This should be no greater than 40 percent, and is not applied to financial firms)
Earnings growth - The inflation-adjusted long-term EPS growth rate should be at least 15% per year).
An optional criterion (to be used in the technology and medical industries) was:
Price to Research Ratio - Less than 5% was the best case, and those between 5 and 10% were still indicative of bargains. Less than 15 percent was borderline.
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.
Also known as Return on Sales, this value is the Net Income divided by Sales for the same period and expressed as a percentage.
Stockopedia explains Net Mgn % 5y Avg...
This is one of the best indicators of the company's efficiency because net profit takes into consideration all expenses of the company. Investors want the net profit margin to be as high as possible. Rising margins are seen as a positive signal although high margins do tend to attract the interests of competitors.
Also known as Net Gearing, this is a measure of a company's financial leverage calculated by dividing its net liabilities by stockholders' equity. The formula is : (Total Debt - Cash) / Book Value of Equity (incl. goodwill and intangibles)
It uses the book value of equity, not market value as it indicates what proportion of equity and debt the company has been using to finance its assets.
If the value is negative, then this means that the company has net cash, i.e. cash at hand exceeds debt.
Stockopedia explains Gearing %...
The gearing ratio shows how encumbered a company is with debt. Depending on the industry, a gearing ratio of 15% might be considered prudent, while anything over 100% would certainly be considered risky or 'highly geared'. As a general rule, net gearing of 50% + merits further investigation, particularly if it is mostly short-term debt. A highly-geared company is more vulnerable to a sudden bump in the road, either operationally or due a change in the economy (e.g. a recession or an increase in interest rates).
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.