In investing, knowing which numbers you should pay attention to and which you should discard is half the battle. Honing in on the measures that tell us what’s really going on can save us a lot of time and pain. It also allows us to move faster than the competition.
At Stockopedia, we strive to identify these key measures. One of the most useful we have found so far is Piotroski’s F-Score - and the F-Score has good news for shareholders of small cap super stock Capital Drilling, which operates in the Basic Materials sector.
Prospects appear to be bullish for Capital Drilling right now: for the fiscal year ended 31 December 2018, revenues fell 3% to $116m but net income jumped up by 48% to $7.7m.
Why the Piotroski F-Score matters
Followers of renowned accounting professor Joseph Piotroski are well aware of the checklist that made him famous in 2002. Piotroski is behind the F-Score: a simple indicator to highlight neglected stocks with improving prospects.
What's good 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.
Capital Drilling's F-Score: what does it mean?
Capital Drilling (LON:CAPD) 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. Below, you can see exactly how LON:CAPD stacks up against the checklist.
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.