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Why the signs are positive for the Palace Capital share price (LON:PCA)

19th Feb '20 by Jack Brumby

Around 90% of the world's data has been created in the last two years - so understanding the difference between what is meaningful and what is just noise is more important now than ever. Successful investors know which numbers to track and which to discard.

Focusing on the figures that tell us what’s actually happening can help keep us out of trouble. At Stockopedia, we read through academic studies and backtest strategies to identify these key measures. One of the best we have found so far is the Piotroski F-Score - and the F-Score has good news for shareholders of small cap Financials company Palace Capital (LON:PCA).

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Why Palace Capital shareholders need to know the Piotroski F-Score

Those that know well-respected accounting professor Joseph Piotroski are aware of the checklist that made him famous in the early Noughties. This 'F-Score' is a simple indicator to identify neglected companies whose fortunes are changing for the better.

The Piotroski F-Score contains 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 operating efficiency of the firm.

Interpreting Palace Capital's F-Score

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

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 Palace Capital (LON:PCA) scores 8 out of a possible 9.

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In his landmark academic paper "Value Investing: The Use of Historical Financial Statement Information to Separate Winners from Losers", Piotroksi showed that by investing in companies scoring 8 or 9 by these measures over a 20-year test period through to 1996, investor returns could be increased by an astounding 7.5% each year.

What does this mean for potential investors?

Palace Capital has an F-Score that suggests it could be a promising investment candidate worthy of further research - but it's only a first step. Higher F-Score stocks can still have weaknesses and may trade at premium prices compared to other stocks. We've identified some areas of concern with Palace Capital that you can find out about here.

Alternatively, if you'd like to find more shares with high F-Scores, just come and take a look at this High F-Score screen.

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