Step 1) Analystsí Ratings & Forecasts
Sentiment Index _____
Add one point if the Sentiment Index score is minus 4 or below. Subtract one point if the SI score is greater than 2.
Earnings Growth _____
Subtract one point if the forecast year-over-year earnings growth exceeds 4%
Earnings Forecast Trend _____
Subtract one point if the EPS forecasts increased two cents or more during the last 90 days.
Step 2) Valuation
Implied Growth _____
Add one point if the implied growth is less than 5%. Subtract one point if the implied growth exceeds 10%.
Step 3) Target Price
Current price vs. target buy price _____
Add one point if the current price is below the low target buy price. Subtract one point if the current price exceeds the high target buy price
Step 4) Industry Analysis
Industry Growth _____
Add one point if the industry sales growth rate exceeds 15% Subtract one point if the industry growth rate is less than 3%
Industry Concentration _____
Add one point if the industry has less than four major competitors
Step 5) Business Plan
Business Plan Score _____
Record business plan score
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Step 6) Management Quality
Key Executive & Board Quality _____
Add one point if you rated the Key Executive & Board Quality very good or excellent
Clean Accounting/EPS Growth Stability _____
Subtract one point if the non-recurring charges percentage of sales averaged 3% or more over the past five years, or if you judged the earnings growth stability as poor.
Stock Ownership (not included in score)
Step 7) Financial Health
Financial health is a pass or fail test. Disqualify candidates that fail the appropriate test.
Step 8) Profitability
Normalized Return on Assets _____
Normalized return on assets is the ROA that you expect the firm to achieve in its recovery year. Add one point if the normalized ROA exceeds 14%. Subtract one point if the normalized ROA is less than 6%
Step 9) Red Flags
Historical Capital Exp. vs. Depreciation _____
Subtract one point if recent annual deprecation charges generally exceeded capital expenditures in the same year.
Step 10) Ownership
Total Insider Ownership _____
Subtract one point if insider ownership exceeds 55% of shares outstanding
Step 11) Price Chart
Share Price vs. Moving Average _____
Subtract one point if the share price is more than 10% above its 200-day MA
Total Score _____