Why you need to look at Safestyle Uk's (LON:SFE) Piotroski F-Score

Safestyle Uk (LON:SFE) is a United Kingdom-based company engaged in the sale, manufacture and installation of replacement un-plasticized polyvinyl chloride (PVCu) windows and doors, with segments including the sale, design, manufacture, installation and maintenance of domestic, double-glazed, replacement windows and doors.

The group has run into trouble recently as a result of a direct competitor taking market share, although Safestyle is looking to bounce back. For the fiscal year ended 31 December 2018, Safestyle UK PLC revenues decreased 27% to £116.4M and net loss totaled £13.3M (vs income of £10.8M in the prior period). We can see the impact of this decline in financial performance on the group's share price over the past two years:

And also in the downwards trend in forecast EPS from its three brokers over the past year:

Unfortunately, applying the Piotroski F-Score to this small cap doesn't do much to dispell 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 Safestyle Uk (LON:SFE)

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 Safestyle Uk 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 Safestyle Uk fails in the graphic below:

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