Quality and value
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Quality asks how well a business uses its money. Value asks how much you pay for it. These recipes screen for one or both, and the last one looks for the opposite: debt rising against falling earnings.
They read reported financial statements and change slowly. Every recipe here needs Super or Super Pro, because the fundamental fields do.
Recipes
Quality Compounder
Super Pro planCompanies worth over $1B with return on equity of 15% or more, return on invested capital of 12% or more, debt-to-equity of 0.5 or less and revenue growth of 10% or more, in an uptrend.
Filters
- Market cap>$1B
- SMA(c,50)>SMA(c,200)
- Return on equity≥15%
- Return on invested capital≥12%
- Debt / equity≤0.5
- Revenue growth≥10%
- How to use it
Compare the matches' valuations. The screen doesn't test price, so a great business can still be expensive.
- Warning
High returns on capital attract competitors. Check whether the returns have held for several years.
Magic Formula
Super Pro planA screen inspired by Joel Greenblatt's Magic Formula: return on invested capital of 15% or more and a P/E between 0 and 15, in companies worth over $100M.
Filters
- Market cap>$100M
- Return on invested capital≥15%
- P/E ratio>0
- P/E ratio≤15
- How to use it
Look at why each stock is cheap. A low P/E can mean the market expects earnings to fall.
- Warning
Cheap stocks can stay cheap. The method is usually described as a basket held for a year, not a one-stock pick.
FCF Compounder
Super planCompanies worth over $200M with positive free cash flow that is higher than a year ago, and a net profit margin of 10% or more.
Filters
- Market cap>$200M
- Free cash flow>$0
- Profit margin≥10%
Open the scan to see its other filters.
- How to use it
Check capital spending. Free cash flow can rise because a company cut investment, not because it earns more.
- Warning
One quarter's cash flow can swing on the timing of payments. Look at several quarters.
Balance Sheet Fortress
Super planProfitable companies with a current ratio of 2 or more, debt-to-equity of 0.3 or less and more cash than a year ago.
Filters
- Current ratio≥2
- Debt / equity≤0.3
- Profit margin>0%
Open the scan to see its other filters.
- How to use it
Use it as a safety filter. Add a valuation or growth filter to turn the list into candidates.
- Warning
Cash piling up can also mean a company has nothing to spend it on.
Leveraged Deterioration
Super Pro planCompanies worth over $100M with debt at 4 times EBITDA or more, EPS at or below a year ago and EBITDA margin at or below a year ago, while RSI is still above 40.
Filters
- Market cap>$100M
- RSI(c,14)>40
- Debt / EBITDA≥4
Open the scan to see its other filters.
- How to use it
Read the debt schedule in the latest filing. Debt coming due soon matters more than the ratio alone.
- Warning
Heavy debt is normal in some industries, such as utilities and real estate. Compare a match with its peers.
Quick reference
Tips
- Combine two recipes: load Quality Compounder, then add P/E ratio≤20 for a quality screen with a price limit.
- Sort by market cap to start with the companies analysts cover most.
- The fields behind each recipe are explained in Fundamental metrics.