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Will Northgate's (LON:NTG) share price suffer because of its poor F-Score?

7th Mar by Jack Brumby

It's hard to keep tabs on hundreds of companies, but that's what we have to do if we want to find overlooked investment opportunities. Sometimes there just isn't time to dig through the annual accounts of multiple companies, however.

Thankfully there are measures like the Piotroski F-Score, which distill a wealth of financial data into one easily comparable score. Unfortunately, what the F-Score algorithm says for Industrials operator Northgate (LON:NTG) is not good. First a little bit more on what this number means.

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What the Piotroski F-Score says about Northgate (LON:NTG) 

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. Unlike most ratios, the F-Score looks more deeply into the direction in which a company’s financial health is moving. 

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 Northgate gets a lowly F-Score of 2 out of a possible 9...

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This means that not only is Northgate's (LON:NTG) financial health deteriorating, it currently fits in with the stocks that Piotroski identified as being five times more likely to go bankrupt or delist. Looking at the group's recent financial results, we can see that for the six months ended 31 October 2018, Northgate plc revenues increased 7% to £374M. However, net income decreased 4% to £24.4M  as its Corporate segment struggled.

This mixed performance muddies the picture but also highlights why paying attention to systematic checklists such as the F-Score can provide some much-needed clarity and help us make considered, consistent decisions.

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