In the internet age, we face a daily blizzard of financial data. Successful investors know which numbers to track and how to ignore the noise.
Some stocks excite investors by talking up future growth prospects that never quite come to fruition. Others claim operational progress by tracking heavily-adjusted vanity metrics that complicate the underlying picture.
Honing in on the measures that tell us what’s really going on can save us a lot of time and pain. At Stockopedia, we read through academic studies and backtest strategies to identify these key measures. One of the most promising we have found so far is Piotroski’s F-Score - and the F-Score has good news for shareholders of mid cap group Hunting (LON:HTG), which operates in the Energy sector.
Why we should pay attention to the Piotroski F-Score
Followers of celebrated accounting professor Joseph Piotroski are well aware of the checklist that made him famous at the turn of the millennium. Piotroski is behind the F-Score: a simple indicator to highlight stocks showing the most likely prospects for outperformance amongst a basket of neglected companies.
The great thing about the F-Score is that it is essentially an entire quality and fundamental momentum screen in a single number, succinctly summing up the financial health trend of a company. Applying it as a filter on top of almost any strategy can help to increase returns and reduce risk.
The F-Score is made up of nine checks split up into three main areas of financial analysis. First is profitability, where it examines operating profits and cash flow to make sure the business can sustain itself and pay dividends. Then come three checks on the capital structure of a business, followed by a final look at the firm’s operating efficiency.
Hunting (LON:HTG)'s F-Score: what does it mean?
Stockopedia applies algorithms to its stream of financial data to automatically calculate the Piotroski F-Score for every stock on the market. It shows that Hunting (LON:HTG) scores 8 out of a possible 9.
In his landmark academic paper "Value Investing: The Use of Historical Financial Statement Information to Separate Winners from Losers", Piotroksi showed that by investing in companies scoring 8 or 9 by these measures over a 20-year test period through to 1996, investor returns could be increased by an astounding 7.5% each year.
Find more high-quality stocks
This F-Score suggests Hunting (LON:HTG) is a promising investment candidate and is worthy of further research - but it is only a first step. It has been proven that higher F-Score stocks often trade at a premium compared to other stocks. Investors like to pay up for quality but its important not to pay too much.
Disclaimer: These articles are provided for information purposes only. The content is not intended to be a personal recommendation. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser. The author has no position in the stocks mentioned, unless otherwise stated.