Earnings Per Share 5 Year Growth Rate Backtest

Growth investing is often considered the opposite of value investing. However, growth fundamentals influence how a company is valued. Today, I’m going to test how the long-term earning per share 5 year growth rate impacts stock returns. The EPS 5-year growth rate I’m using for this backtest is the compound annual growth rate of earnings per share

Return on Equity Backtest

The Return on Equity (ROE)  is a commonly used profitability metric. ROE measures a company’s efficiency at generating profits from every unit of shareholders’ equity. It is often used in conjunction with a DuPont analysis, which breaks down ROE into three components. Those components are profit margin, asset turnover, and financial leverage. Return on equity is calculated as follows:

Price to Sales Ratio Backtest

The Price-to-Sales (P/S) ratio is a commonly mentioned valuation ratio. It is similar to the P/E ratio but uses revenues instead of earnings. The advantages of using sales in this valuation ratio are two fold. First, it somewhat controls for earnings manipulation, since it is harder to manipulate sales numbers. Second, because the Price/Sales ratio does not

Price to Free Cash Flow Ratio Backtest

The Price-to-Free Cash Flow (P/FCF) ratio a popular valuation ratio among value investors. It is similar to the P/E ratio but free cash flow is just operating cash flow minus capital expenditures.  Because it relies on the Statement of Cash Flows, it is thought to be less susceptible to accounting manipulation. Free cash flow is also similar to Warren

PEG Ratio Backtest

The Price-to-Earning to Growth ratio, commonly referred to as the PEG ratio, is a simplistic valuation rule of thumb. A value less than one potentially indicates an undervalued stock and a ratio greater than 1 might indicate overvalued stock. This simplistic and somewhat controversial ratio was popular in the ’90s but has more recently grown out of favor . The

Total Debt to Equity Ratio Backtest

The total debt to equity ratio is a measure of a company’s financial leverage. A high debt to equity ratio can indicate higher financial risk due to potentially higher interest costs associated with the debt and the future need to either pay back the debt or roll the debt forward with new financing. Alternatively, if

New Value Opportunities Selling below PE 12.5 May 19, 2014

What stocks are on sale this week? One method to try to answer this question is to look for stocks that recently started trading below a Price to Earnings (PE) ratio of 12.5.  Why 12.5?  A PE of 12.5 is the same as an earnings yield of 8%, which provides a decent return given an approximately

Current Ratio Backtest

The current ratio is a popular stock fundamental used to test a company’s liquidity. It primarily tries to answer the question of whether a company has enough resources to pay its debt over the next 12 months. The current ratio is calculated as follows: Current Assets / Current Liabilities = Current Ratio Benjamin Graham suggested in The

New Value Opportunities Selling below PE 12.5 May 12, 2014

What stocks are on sale this week? One method to try to answer this question is to look for stocks that recently started trading below a Price to Earnings (PE) ratio of 12.5.  Why 12.5?  A PE of 12.5 is the same as an earnings yield of 8%, which provides a decent return given an approximately

New Value Opportunities Selling below PE 12.5 May 5, 2014

What stocks are on sale this week? One method to try to answer this question is to look for stocks that recently started trading below a Price to Earnings (PE) ratio of 12.5.  Why 12.5?  A PE of 12.5 is the same as an earnings yield of 8%, which provides a decent return given an approximately