Here's how Phoenix Global Resources (LON:PGR) fails the Piotroski F-Score

To be successful, we need to invest in the best companies and avoid those with weak financials, but there are thousands of listed businesses. That's a lot of noise and even professionals struggle to find the time to keep on top of it all.

Thankfully you can gauge financial health with a single number and compare that number across companies.

It's called the Piotroski F-Score. Unfortunately, what the F-Score algorithm says for Energy operator Phoenix Global Resources (LON:PGR) is not good. For the six months ended 30 June 2018, Phoenix Global Resources PLC revenues increased 60% to $92.9M but net loss also increased from $7M to $41.9M. Given these losses, it is even more important for Phoenix to have a strong balance sheet.

What the Piotroski F-Score does better than any other number

The Piotroski F-Score is a nine-strong checklist split up into three sections, each looking at a different part of a company's financial situation. Unlike most ratios, the F-Score looks more deeply into the direction in which a company’s financial health is moving. Understanding this direction of travel can help us stay ahead of the game.

Stanford Finance Professor Joseph Piotroski wanted a smarter way of identifying recovery plays. After settling on the F-Score, he produced some astonishing results.

Piotroski found that weak stocks with an F-Score of 2 or less are five times more likely to either go bankrupt or delist due to financial problems. Working our way through Piotroski's checklist, we can see that Phoenix Global Resources gets a lowly F-Score of 2 out of a possible 9. Food for thought for anyone looking to hold onto their money. You can see where Phoenix fails in the graphic below:

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