Why you need to look at Filta Group's Piotroski F-Score

Filta Group (LON:FLTA) is a provider of various services to national and independent commercial kitchen operators and owners. The Company's principle service is FiltaFry, which is the micro-filtration of cooking oil, the vacuum-based cleaning of deep fryers and full Fryer Management.

For the six months ended 30 June 2019, Filta Group Holdings PLC revenues increased 86% to £12.2M but net income decreased 56% to £360K.

Unfortunately, applying the Piotroski F-Score to this micro cap doesn't do much to dispel these concerns... We'll get into this later, but first a quick refresher on what the F-Score means.

The Piotroski F-Score: one indicator to rule them all?

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.

Why the F-Score does not like Filta Group

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 Filta Group gets a lowly F-Score of 2 out of a possible 9. Food for thought for anyone looking to hold onto their money. We can see which areas of the checklist Filta Group fails in the graphic below:

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