The design of the EstablishedGrowth stock rating strategy. A strategy that focuses more on established companies with a growing business.
The design of the EstablishedGrowth strategy is all tailored around the accomplishment of the task “Find stocks that give solid and stable profits in the long run”. In a nutshell, it aims to meet the requirements by stressing the importance of an established and growing business.
Within the EstsblishedGrowth strategy, established and growing business is mainly modeled by the features “revenue growth”, “earnings growth” and “stock price momentum”.
1. Prefiltering
Prefiltering is done according to the following rules. When the “no-go” criterion is fulfilled, the stock is filtered out. It is then not considered during the stock rating anymore. If no data is available or can’t be evaluated the stock is skipped as well.
The abbreviation “ttm” means “trailing twelve months”, i.e. the last twelve months are evaluated. The abbreviation “by” means “business year”.
| feature | no-go filter criterion |
|---|---|
| P/E ttm | < 10 |
| eps ttm (earnings per share) | < 0 |
| fcf ttm (free cash flow) | < 0 |
| stock price performance rel. index after earnings release | missing data |
| eps during the last three business years | < 0 at least once |
| fcf during the last three business years | < 0 at least once |
| 10 year stock price performance | < 50 % |
| 5 year stock price performance | < 50 % |
| 2 year stock price performance | < 20 % |
2. Stock rating
Stock rating is done by applying the classification and scoring rules listed in the below tables. The features are grouped into categories which are weighted by a percentage value as stated in the below feature category table.
| feature category | category weight |
|---|---|
| quality | 50 % |
| price | 25 % |
| momentum | 20 % |
| sentiment | 5 % |
The rating of the single features again uses the scores +1, 0 and -1 for the performer, neutral and underperformer class respectively. The features of the quality category are listed in the table below.
| feature | +1 | 0 | -1 |
|---|---|---|---|
| RoE last by | > 20 % | 10 % – 20 % | < 10 % |
| EBIT margin last by | > 20 % | 10 % – 20 % or if financial sector | < 10 % |
| debt to equity ratio last by | < 1 | 1 – 2 or if financial sector | > 2 |
| mean revenue growth last 5 by | > 10 % | 0 % – 10 % | < 0 % |
| revenue growth ttm | > 10 % | 0 % – 10 % | < 0 % |
| mean earnings growth last 5 by | > 10 % | 0 % – 10 % | < 0 % |
| earnings growth ttm | > 10 % | 0 % – 10 % | < 0 % |
| mean fcf growth last 3 by | > 20 % | 10 % – 20 % | < 10 % |
| fcf growth last by | > 20 % | 10 % – 20 % | < 10 % |
The features of the price category are listed in the table below.
| feature | +1 | 0 | -1 |
|---|---|---|---|
| mean P/E last 5 by | < 20 | 20 – 40 | > 40 |
| P/E ttm | < 20 | 20 – 40 | > 40 |
The feature of the momentum category is listed in the table below.
| feature | +1 | 0 | -1 |
|---|---|---|---|
| stock price change rel. index last 3 years | > 50 % | 20 % – 50 % | < 20 % |
| stock price change last 6 months | > 15 % | 5 % – 15 % | < 5 % |
The feature of the sentiment category is listed in the table below.
| feature | +1 | 0 | -1 |
|---|---|---|---|
| stock price performance rel. index after earnings release | > 1 % | -1 % – 1 % | < -1 % |