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 self-explanatory that if a company brings in more money and sells units faster, its long-term price should increase.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. Specifically, it must rank 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 gives 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 that a Green flag have over a 50% win rate over the past twenty years. In the case of this flag, we do 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 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.
A student of finance at Georgia State University, Tyler has had a passion for the world of finance for as long as he can remember. Joining the Equities Lab team in 2015 he attempts to juggle the perfect mix of school, work, and giving back to the community. When he isn't working at Equities Lab he can often be found helping teach programs at the Rosen Family Foundation - a non-profit that teaches financial literacy to middle and high school students.