Why Creo Medical (LON:CREO) fails the Piotroski F-Score

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. That's why it's so useful to know a few numbers that say a lot about a company. This is what the Piotroski F-Score sets out to do.

Let's take Creo Medical Group as an example. Creo Medical Group plc is a United Kingdom-based medical device company focusing on the field of surgical endoscopy and other minimally invasive surgical devices. The group is still pre-revenue and reported an increase in net loss to £8.4m for the year to 30 June 2018. What jumps out as an immediate concern is that the group only has c£6.5m of cash on its balance sheet despite raising £20m halfway through 2017. 

Unfortunately, what the F-Score algorithm says for Healthcare operator Creo Medical (LON:CREO) is not good. We'll get into this later, but first a bit more on what this number actually means.

Why Creo Medical (LON:CREO) shareholders need to know the Piotroski F-Score

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
• 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.

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.

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 Creo Medical 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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