Last week’s biggest investing sensation was probably the profit warning from Revolution Bars Group. The bar operator’s share price has fallen by about 40% over the last five days, and is now trading at an all-time low of about 120p.

The Stock in Focus portfolio appears to have narrowly dodged a bullet with this share. Revolution Bars came close to qualifying for my screen on a number of occasions. But the stock never quite ticked all of my boxes at once, saving the portfolio from a potentially hefty loss.

Of course, Revolution Bars may bounce back strongly from here. More importantly, the stock could be an outright bargain at the current level of about 120p. Paul Scott gave his detailed view on the stock here and appears to remain bullish.

I too can see the appeal of the stock at current levels. It’s highly cash generative and well financed. Trading on a forecast P/E of about 8.4 with a prospective yield of about 4%, Revolution looks very cheap indeed to me. Return on capital employed rose to 15% last year. Even if the group stopped opening new bars tomorrow, the current valuation ought to allow for decent returns.

Overall, Revolution’s financials appear to paint a picture of affordable growth. This is the core requirement for the SIF portfolio, so why aren’t I filling my boots with cheap stock this week?

Screening test fail

Leaving aside the portfolio’s current lack of cash, the reason I’m not buying Revolution Bars for the SIF portfolio is simply that it doesn’t satisfy all of my screening rules.

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Readers who’ve followed this column over the last year may be able to guess why. Revolution Bars’ share price collapse means that its one-year relative strength (RS 1y) is now negative.

This was a factor that prevented me adding a number of otherwise attractive stocks to the portfolio in the wake of last year’s Brexit sell off. For a long while, I was tempted to remove this constraint for this year, but in the end I opted to leave it unchanged.

The reason for this is that relative strength is the main indicator of momentum in my screen. And although poor momentum can be a contrarian buying indicator, I’m not sure it fits well with my…

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