November 29, 2020 04:50 AM RSS

The New Scorecard

  • Wall Street Rebel | Geoff Garbacz
  • 09/06/2018 5:01 PM
The New Scorecard
We have updated our scorecard to offer a new and improved one that will fix certain weaknesses of the prior model. As such, you may see some big differences in the price targets as well as upper and lower bounds.

The model still is being drive by comparing the price/earnings ratio (P/E) but now we are tracking against the P/E of the S&P 500 as well as its sector and industry. Second we are looking at the earnings growth rate against the P/E.

We will reward companies that are growing earnings at a greater rate than the P/E ratio. So if a stock has a P/E of 15 and it is growing earnings at 25% then we will like that company. However, if the company has a P/E of 25 and a earnings growth rate of 10% then we will be more negative on the company.

In addition to the P/E and earnings growth rate, we look at whether the company is paying a dividend and reward those that are paying shareholders. Within capital payout, we are looking at the company and its Return On Equity (ROE). Over time, this variable has proven to be a great predictor of future positive price performance.

As interest rates begin to rise, companies with high levels of debt are going to underperform and as such we are tracking debt levels within our price model. When interest rates are dropping, then debt does not matter as much but currently it is an important variable.

Last but not least our scorecard looks at price return and rewards stocks with positive price returns and penalizes those with negative returns.  

We do not score companies that have negative earnings as there is no effective way to build a predictive price model. Each Monday the model will be updated for your review. A sample of the model can be seen below:

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