Now, this flag looks incredibly simple, but whenever you see orange text in Equities Lab, it means that there is a deeper formula to explore. Clicking on that formula we are presented with the following –
Though the flag itself is simple, the underlying formula is not. Understanding and analyzing cash flow statements takes time. Thankfully, we can do it easily here by importing the Cash Flow Score – a number from 0 to 10 based on the above metrics. For each line that is true for a company, it will score 1 point. The lines look for the following –
We’ve all heard the old trope that “Cash is King.” Well, in terms of a company it just might be. As part of our Green Flag score we have created a line that requires that a company have a positive operating cash flow over the past four quarters.
If you are unfamiliar with what operating cash flow is, it is exactly what the name suggests – cash flow from operations.
Each of our Green Flags must conform to a few rules to ensure that they are actually green flags in investors’ eyes. One such requirement is that a flag must have a win ratio of at least 50%.…
Intuitively, most investors would assume that consistent growth in free cash flow within a company, would result in a high performing stock. Well today we’re going to test out that theory with the “Free Cash Flow Growth Leaders Stock Screener”. With this screener, we’re looking for:
· Large and stable companies; companies that have a market cap over a billion dollars sectioned off into their respective sectors.
· Companies that rank in the top 15% of their sectors for free cash flow growth over the last trading year as long as their FCF is greater than 0.
We plotted two extra variables, capital expenditures and sales growth.…
Investment Green Flags: PEG > 0
Continuing with our green flag series, today we are going to be taking a look at the PEG ratio, and how well companies perform when their ratio is above 0.
Though an excellent flag, it doesn’t mean anything on its own – especially if you aren’t familiar with a PEG ratio. PEG is a ratio that was designed to look at the trade-off between the price of the stock, how much money the company is bringing in per share, and the annual eps growth.
We’ve taken it a bit further in our calculation and looked for the average annual EPS growth over the past five years.…
A company purchasing back its shares tends to increase the stock price for a couple of reasons. First, it shows that the firm and its employees are confident in the direction the company is heading, and second, it cuts down on the shares available for investors to purchase purchasing the price up through basic supply and demand.
Below, we’ve outlined one of our green flag indicators “Decreasing Shares Outstanding” which can be found within our Green Flags Score.
Like all green flags, we want to keep this to be as simple as possible. We are building a piece of a larger score, not an entire screener.…
A recurring name throughout our software and website, the F-score has been continuously tested under many different circumstances and never ceases to amaze me. It may be simplistic, but, when used correctly, can be a very powerful tool for your portfolio.
For this Green Flag we want to look at the two calculations we have in the system for the Piotroski F-Score – Yearly and Trailing 12 Months. If you are unsure of the difference, the yearly score is based on the most recent annual data, while the T12M relies on the four most recent quarters. This slight difference just means that the T12M score is two-quarters ahead of the yearly score data wise.…
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 –
With all of the recent articles regarding red and green flags, I realized I should begin writing articles on the flags within the score. One such flag, the bad Beneish score, is a key component of the red flags score.
The line item, “Bad Beneish Score” within the red flags score is calculated by using the above editor.
Now that we’ve gone over red flags, it’s time to look at the other side of the equation and learn about green flags.
In our previous article, we discussed that red flags don’t necessarily mean that an investment is going to lose money. Green Flags are the polar opposite from a red flag, but it still doesn’t guarantee anything. A company could have every green flag raised and still lose money over the time you hold it. However, green flags do indicate that a company is less likely to be a dud and increase your chances of long term success.…
A little over a year ago we released an article that outlined the process that one has to go through to create a tear sheet within the Equities Lab system. Upon looking back on it, I realized that the article didn’t really make the process seem very user friendly, so I’m going to go ahead and illustrate how to build a tear sheet step by step.