Historical growth rate of a company's revenue, earnings, dividends and free cash flow. This helps you quickly decide if this company has been consistently growing. It the growth rates are lumpy, you need to ask why that is. The best companies in the world usually have high and consistent growth rates.
Historical return measures share price performance. There's nothing special here, it's just something to be aware of.
Share price stability is an important factor just like Historical Growth. Again, the best investments are usually those who have high share price stability. It does not mean that the price is a flat line obviously. Instead, it means that the price does not have big swings and just rises steadily one year after the other.
Liquidity measures the trading volume of a company's stock. You may not want to put all of your money into illiquid companies, in case something unexpected happens and you need to sell your shares.
Stock beta is similar to Volatility, it measures how the share price moves in relation to market. High beta stocks are usually more volatile than markets. So if you want to be aggressive, then focus on high beta stocks. If you prefer to be conservative, lower beta stocks (in this case less than 1) should be on your radar.
Now onto 2 indicators about the market's expectation for a company. Expected return is how much the sell-side analysts think the share price will increase or decrease in a particular year year. Expected growth measures how much the sell-side analysts think the company's revenue and earnings will grow in one year.
Environmental, Social and Governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. Environmental criteria consider how a company performs as a steward of nature. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.
Accounting strength detects smoking guns in a company's financial reporting. Large accounting fraud usually stems from mismatch between the 3 financial statements. Our accounting strength metric looks into the accounting items such as working capital, free cash flow and net income, etc to detect the likelihood of a company's accounting mis-practice. It is an important "red flag" metric for you to keep an eye on.
Dividend yield is for the income lovers. One word of caution: it is not enough just to look at dividend yield. You should combine this with Capital Allocation and Financial Strength inside the Quality factor. You want to focus on companies who consistently increase their dividend, while backed by strong balance sheet. Otherwise, the dividend is at risk of being cut.
In the next article, we will go through the specific calculations in these stock factors. If you'd like to read about how the rankings are calculated, click the link below.