Should you be worried about Funding Circle Holdings's (LON:FCH) Piotroski F-Score?

As investors, we want to invest in the best and avoid that plummeting feeling but it's hard to keep tabs on hundreds of companies. That's a lot of noise and we've all got lives to lead. Even though Stockopedia's StockReports give the modern investor the essential data needed to make informed decisions, filtering out the most dangerous stocks can be hard to do and takes time.

But what if you could gauge financial health with a single number?

This is what the Piotroski F-Score sets out to do. We can take a look at how it words by using Technology operator Funding Circle Holdings (LON:FCH) as an example. Funding Circle Holdings Plc, formerly Funding Circle Holdings Ltd, is a United Kingdom-based peer-to-peer lending platform that provides both secured and unsecured loans to businesses.

Unfortunately, what the F-Score algorithm says for Funding Circle Holdings (LON:FCH) is not good. We'll get into this later, but first a bit more on what this number actually means.

Why Funding Circle Holdings (LON:FCH) shareholders need to know the Piotroski F-Score

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. Its secret sauce is that, unlike most ratios, the F-Score looks more deeply into the direction in which a company’s financial health is moving. Keeping on top of these trends can help us stay ahead of the game.

When a stock gets beaten down it ends up in the bargain basement of the stock market. From here there are generally three outcomes. The stock either:

• Stumbles along, zombie-like,
• Tumbles into administration, or
• Recovers emphatically

Stanford Finance Professor Joseph Piotroski wanted to sort the wheat from the chaff. After settling on the F-Score, he produced some astonishing results. We have much more to say on the Piotroski F-Score, but for now let's get back to Funding Circle Holdings (LON:FCH). Stockopedia's Piotroski F-Score algorithm points to storm clouds ahead.

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 Funding Circle Holdings gets a lowly F-Score of 2 out of a possible 9. Food for thought for anyone looking to hold onto their money.

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