Revenue Growth and High Asset Turnover
When it comes to finding green flags, sometimes the simplest idea is the best. In the case of our flag – Revenue Growth and High Asset Turnover – we look for just that. It’s pretty self-explanatory that if a company is bringing in more money and is selling products faster than anyone else, it will likely increase in price long-term.
In this flag, we’ve kept it fairly simple by looking for the following –
- Within the past trading year, the total revenues must be larger than they were a year ago. This must be true for all points throughout the year.
- Their Asset Turnover rate must be higher than their competitors within each Sector – ranks must be in the top 35% of companies.
To ensure that we have a wide variety of options, we need to make sure that this Green Flag doesn’t eliminate too many companies from the investable universe. Thankfully, it doesn’t require any additional tweaking as it returns 465 possible investments. This will give you wiggle room to cut down further with other green flags or your own personal stock screener.
When it comes to our Green Flags we have a few requirements that are hard stops. These keep our flags consistent in providing the most valuable information possible. One such stop is our requirement that a Green flag have over a 50% win rate when you take a look at the positions over the past twenty years. In the case of the flag “Increasing Revenue and High Asset Turnover” we do get a little better than 50%, with the win rate floating around 55%.
Add a backtest that beats the market by a healthy margin to that above 50% win rate, and you have yourself a green flag. Albeit you won’t be breaking any return records by investing in companies that simply have increasing revenue and high asset turnover, but you’ll be able to more easily identify good possible investment opportunities and simplify your analysis process.