Score Guide

The Scorecard uses eight metrics in combination with parameters:

The eight metrics are:

(1) Analyst Recommendations

(2) Earnings Forecasts;

(3) Earnings per Share (EPS)

4) Earnings Surprises;

(5) Insider Activity

(6) Price/Earnings-to-Growth ratio (PEG)

(7) Return on equity (ROE)

(8) Revenue

You can customize the parameters to form the basis of the Scorecard, where a stock can receive up to 8 points based on positive attributes or scoring based on the parameters. A user can add a level of customization for each parameter that can increase the amount of weight that the parameter carries.  For instance, for analyst recommendations, a threshold of “buy” recommendations from analysts can contribute one point to the score card. 

A user can modify this parameter, for example, by including a lower “hold” recommendation threshold for awarding a point, or a higher “strong buy” threshold for awarding a point.  A similar type of modification logic can be used for the other economic based parameters. The scorecard does not produce a recommendation or advice regarding a stock, it simply outlines how many of the 8 parameters have a positive score.  For example, if 3 parameters have a positive score, the scorecard for a stock would be 3:8. The scorecard would not include an explicit recommend to buy, sell, or hold a stock, but it indicates what the majority of analysts are indicating.

What is the Industry Average Score?

All companies in a specific industry that have sufficient data for a source card, are added together and the average is taken into account and provides a comparison to the individual stock’s score.  As you change the parameters this too will change the industry average as it is calculated based on your selections in the parameters.

How is the industry assigned?

Industry average is based on the standard industrial classification (SIC) code mapping.  The industry is a grouping of SIC codes that roll-up into a classification referred to as an “industry”.

What are Earnings Forecasts? 

Earnings forecast estimates are based on analyst consensus and are another indicator of estimated growth. Also referred to as Consensus forecast, this is the mean of all financial analysts' forecasts for a company.

Why We Look at Earnings Forecasts

While it is very important to research a stock's past earnings reports, it is also important to look at the future earnings forecasts to ensure that the future profitability of the stock in question is strong.

How to Score Earnings Forecast

You can give Earnings Forecast a +1 score if the consensus EPS forecast numbers increase year over year.  If the consensus EPS forecast numbers do not increase year over year, then it receives no score.

What is EPS? 

A company's profit divided by its number of common outstanding shares. If a company earning $2 million in one year had 2 million common shares of stock outstanding, its EPS would be $1 per share. In calculating EPS, the company often uses a weighted average of shares outstanding over the reporting term.

Why We Look at EPS

If revenue tells us how much money is flowing into the company, EPS tells us how much of that money is flowing down to stockholders. EPS tells you how much money the company is making in profits per every outstanding share of stock. The higher the EPS is, the more money your shares of stock may be worth because investors are willing to pay more for higher profits.

How to Score EPS

You can give EPS a point score if EPS is increasing. Start first by comparing the annual totals.  If the most recent fiscal year is incomplete, you can compare the most recent quarter with the same quarter in the previous year.  If EPS is decreasing no point is awarded.

How you can customize your parameters

Scale 1- 20%, you can select a single value to customize your scorecard.  This parameter will calculate the percentage increase.  If you select 15% it will display any increase that is 15% or higher.

What are Earnings Surprises?

Positive or negative differences from the consensus forecast of earnings by institutions such as First Call or IBES. Negative earnings surprises generally have a greater adverse effect on stock prices than a reciprocal positive earnings surprise.

Why We Look at Earnings Surprises

Companies announce their earnings every quarter. Leading up to this event, analysts will make predictions as to what they think the earnings per share (EPS) will be. These predictions are often used as a benchmark by market participants.

If the actual EPS comes in higher than the expected amount, this is generally good for the stock price. If the actual EPS comes in lower than the expected amount, this is generally bad for the stock price. When analyzing a company's earnings surprise track record, you want to see that the company is consistently meeting or beating its expectations.

How to Score Earnings Surprises

You can give earnings surprises a +1 score if the EPS surprises during the past four quarters have all been positive; or if it is zero which means that it met the EPS estimate. If the EPS surprises are negative, it will not get any points added.

What is Insider Activity?

Trading by officers, directors, major stockholders, or others who hold private inside information allowing them to benefit from buying or selling stock.

Why We Look at Insider Activity

Insider trading can give you a glimpse into how confident the managers of the company are in the prospects for the company. If managers are confident in the company, chances are good that they will be buying stock in the company. Anytime you see insiders buying stock, it is typically a good sign.

How to Score Insider Activity

You can give Insider Activity a +1 score if the net activity for the past 3 months has been positive. If the net activity for the past 3 months has been negative.

Note: Insider Buys are based on "Number of Open Market Buys"

What is the PEG (Prospective Earnings Growth) Ratio?

The idea is to scale the P/E ratio by earnings growth. Higher P/E multiples could be a result of higher growth opportunities. Expected earnings growth is usually derived from proprietary sources such as Institutional Brokers' Estimate System (IBES), First Call, or Zach's. The usual implementation is to divide the current P/E ratio by the five-year prospective earnings growth. This ratio is problematic if expected earnings growth is negative. As with the usual P/E ratio, zero or very small earnings causes problems too. For stock selection, I usually recommend looking at E/P (earnings price ratio) and expected earnings growth as two separate factors rather than a single PEG ratio. I also recommend looking at different horizons for expected earnings growth -- not just five years.

Why We Look at PEG

One of the more popular ratios stock analysts look at is the P/E, or price to earnings, ratio. The drawback to a P/E ratio is that it does not account for growth. A low P/E may seem like a positive sign for the stock, but if the company is not growing, its stock's value is also not likely to rise.

The PEG ratio solves this problem by including a growth factor into its calculation. PEG is calculated by dividing the stock's P/E ratio by its expected 12-month growth rate.

How to Score PEG

You can give PEG Ratio a +1 score if its value is less than 1.  If its value is greater than 1.0 or is negative, it will not receive a point.

What is ROE? 

Indicator of profitability. This is determined by dividing net income for the past 12 months by common stockholder equity (adjusted for stock splits). Result is shown as a percentage. Investors use ROE as a measure of how a company is using its money. ROE may be decomposed into return on assets (ROA) multiplied by financial leverage (total assets/total equity).

Why We Look at ROE

ROE gives us a glimpse into how efficiently company management is producing a return for the owners of the company based on the amount of equity in the company. To calculate ROE, divide the average shareholder’s equity during the past 12 months by the net profit the company has made during those same 12 months.

How to Score ROE

You can give ROE a point score if ROE is increasing over the Year over Year.  You can give ROE no points if ROE is decreasing.

How you can customize your parameters

Scale 1- 25%; Select the percentage of Return on Equity increase over the previous period.

Why We Look at Revenue\

Revenue will give you an idea of how much money the company is making. If revenue is consistently increasing, this may mean the company is growing. If the company continues to grow, the stock price is likely to appreciate in value.

How to Score Revenue

You can give revenue a point score if revenue is increasing. Start first by comparing the annual totals. If the most recent fiscal year is incomplete, you can compare the most recent quarter with the same quarter in the previous year.  If revenue is decreasing, it won’t get a point.

How you can customize your parameters

Scale 0- 15%, you can select a single value to customize your scorecard.  This parameter will calculate the percentage increase.  In the case of zero it is the same revenue value from the previous time period; if you select 15% it will display any increase that is 15% or higher.

What are Analyst Recommendations?

Reviewing this section will give you an idea of what the professionals think about the stock by reviewing analyst recommendations.

Why We Report Analyst Recommendations

Analysts conduct extensive research on a stock and then issue a recommendation as to what they think the future holds for the company. If the analysts think the company's future outlook is positive, the analysts recommend a "buy."

How to Score Analyst Recommendations

Give a +1 score if the Analyst Recommendation is a “strong buy” or a “buy.” 

How you can customize your parameters

You can select one or all of the following:

Hold, Buy, Strong Buy