As investors, we want to invest in the best and avoid those heading for trouble, but it's hard to keep tabs on hundreds of companies. That's a lot of noise and we've all got lives to lead. Even though Stockopedia's StockReports provide a wealth of financial data, filtering out the most dangerous stocks can be hard to do and takes time.
But what if you could gauge financial health with a single number?
This is what the Piotroski F-Score sets out to do. Unfortunately, what the F-Score algorithm says for Healthcare operator Koovs (LON:KOOV) is not good - especially considering the group made a loss of Rs 580.9m for the six months to 30 September 2018 and has so far racked up a retained loss of nearly Rs6bn.
Why the Piotroski F-Score matters
The Piotroski F-Score is a nine-strong checklist split that, unlike most ratios, the F-Score looks more deeply into the direction in which a company’s financial health is moving. Keeping on top of these trends can help us anticipate how a stock might perform.
When a stock gets beaten down it falls to the bottom of the stock market. From here there it either:
- Stumbles along, zombie-like,
- Tumbles into administration, or
- Recovers emphatically
Stanford Finance Professor Joseph Piotroski wanted to identify the latter. After settling on the F-Score, he produced some remarkable results.
Piotroski found that weak stocks with an F-Score of 2 or less are five times more likely to either go bankrupt or delist due to financial problems. Working our way through Piotroski's checklist, we can see that Koovs gets a lowly F-Score of 2 out of a possible 9.
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.