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Why the future looks bright for J Sainsbury’s (LON:SBRY) share price

5th Mar by Jack Brumby

In the internet age, we face a daily blizzard of financial data. Successful investors know which numbers to track and how to ignore the noise.

Some stocks excite investors by talking up future growth prospects that never quite come to fruition. Others claim operational progress by tracking heavily-adjusted vanity metrics that complicate the underlying picture.

Honing in on the measures that tell us whats really going on can save us a lot of time and pain. At Stockopedia, we read through academic studies and backtest strategies to identify these key measures. One of the most promising we have found so far is Piotroski's F-Score - and the F-Score has good news for shareholders of large cap Consumer Defensive stock J Sainsbury (LON:SBRY), which is engaged in grocery-related retailing and retail banking.


Why we should pay attention to the Piotroski F-Score

Followers of celebrated accounting professor Joseph Piotroski are well aware of the checklist that made him famous at the turn of the millennium. Piotroski is behind the F-Score: a simple indicator to highlight stocks showing the most likely prospects for outperformance amongst a basket of neglected companies.

The great thing about the F-Score is that it is essentially an entire quality and fundamental momentum screen in a single number. Applying it as a filter on top of almost any strategy can help to increase returns and reduce risk.

The F-Score is made up of nine checks split up into three main areas of financial analysis. First is profitability, where it examines operating profits and cash flow to make sure the business can sustain itself and pay dividends. Then come three checks on the capital structure of a business, followed by a final look at the firms operating efficiency.

J Sainsbury (LON:SBRY)'s F-Score: what does it mean?

Stockopedia applies algorithms to its stream of financial data to automatically calculate the Piotroski F-Score for every stock on the market. It shows that J Sainsbury (LON:SBRY) scores 8 out of a possible 9. By investing in companies scoring 8 or 9 by these measures, Piotroksi showed that, over a 20-year test period through to 1996, the return earned by a value-focused investor could be increased by an astounding 7.5% each year.

While J Sainsbury has a high F-Score, its latest operating results were slightly more mixed. For the 28 weeks ended 22 September 2018, revenues increased 3% to £15.13, although net income applicable to common stockholders decreased 14% to £134M and the group's dividend per share remained flat at £0.03. This suggests more work needs to be done on assessing J Sainsbury's operating prospects over the short and medium-term.

Find more high-quality stocks

This F-Score suggests J Sainsbury is a promising investment candidate and is worthy of further research - but it is only a first step. Higher F-Score stocks often trade at a premium compared to other stocks. Investors like to pay up for quality but it's important not to pay too much. We suggest checking the various value factor measures for J Sainsbury on the group's StockReport.

For years, the Stockopedia team have been poring over studies to see what works in investing. That's how we found the F-Score, but that's not all we've found... So take a two-week free trial today to see how Stockopedia can help you to build a better portfolio.

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