This month’s update of our Alpha Quality screens sees one new company from the FTSE All-Share universe passing all nine tests, and three new Aim-traded companies achieving a perfect score against the criteria.
Our screen rules are:
- An operating margin higher than the median average (mid-ranking) stock in each of the past three years (ie quality that shows some signs of persistence).
- A return on equity (ROE) higher than the median average (mid-ranking) stock in each of the past three years (ie again, quality that shows some signs of persistence).
- ROE higher than it was two years ago (ie quality is improving as well as persistent).
- Operating margin higher than it was two years ago (i.e. quality is improving as well as persistent).
- A dividend- and debt-adjusted price/earnings growth (PEG) ratio below the top fifth of stocks screened (ie stocks must not be too egregiously expensive for the growth on offer).
- A price/earnings (PE) ratio above the bottom 10 per cent of stocks screened and below the top 10 per cent (ie not a suspiciously cheap or dangerously expensive valuation).
- Interest cover of less than five (ie high RoE is not overly dependent on the use of debt).
- Forecast earnings growth for each of the next two financial years.
- Positive forecast free cash flow.
Two of the 'perfect nine' Aim-listed companies have moved up to clean-sweep scores. The other Aim company is new to the higher echelons of the screen. There is one new FTSE All-Share company.
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