Investment Green Flags – Increasing Sales and High Asset Turnover
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 will put it to the test. It’s self-explanatory that if a company brings in more money and sells units faster, its long-term price should increase.
The Formula
In this flag, we’ve kept it fairly simple by looking for the following:
- The total revenues must be larger than a year ago within the past trading year. This must be true for all points throughout the year.
- Their Asset Turnover rate must be higher than their competitors within each Sector. Specifically, it must rank in the top 35% of companies.
To ensure we have a wide variety of options, we need to ensure 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 gives you wiggle room to cut down further with other green flags or your personal stock screener.
The Results
Regarding 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 that a Green flag has over a 50% win rate over the past twenty years. In the case of this flag, we get a little better than 50–the win rate floats 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 have increasing revenue and high asset turnover, you’ll be able to more easily identify good possible investment opportunities and simplify your analysis process.
