We need to talk about Hutchison China Meditech's (LON:HCM) Piotroski F-Score

As investors, we want to invest in the best and avoid those heading for trouble, 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 provide a wealth of financial data, 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. Unfortunately, what the F-Score algorithm says for Healthcare operator Hutchison China Meditech (LON:HCM) is not good - especially considering group revenues decreased 19% to $102.2M and net loss totaled $32.7M for the six months ended 30 June 2018.

Why Hutchison China Meditech (LON:HCM) 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.

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 Hutchison China Meditech (LON:HCM) gets a lowly F-Score of 2 out of a possible 9.

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