Microsoft Money

StockScouter is a rating from 1 to 10, with 10 being best, conferred on thousands of stocks. This rating system blends measures of fundamental value and earnings growth with an assessment of potential popularity.

A stock’s overall rating generally reflects the ratio between expected return and expected risk. A stock with high expected return and high expected risk will generally receive a lower rating than a stock with modest expected return and very low expected risk.

When factoring a rating, StockScouter assigns each stock a grade based on a complex formula that weighs and balances four key factors:

• Fundamental. A company’s past earnings growth, its estimated future earnings growth, and its capacity to beat brokerage analysts’ consensus estimate.
• Ownership. Whether a stock is under accumulation by executives and board members.
• Valuation. Whether a stock’s price is high or low relative to its current level of sales, earnings, and expected earnings growth.
• Technical. Whether a stock’s price trend is positive or negative.

Each factor is rated on a five-point scale from A to F. These grades appear on the StockScouter Details pages along with a list of the subfactors. Subfactors do not get grades of their own; instead they add a positive, negative, or neutral bias to the factor grade.

Subfactors are added together in different weights that vary with a stock’s size and sector. Likewise, factor grades are not simply added or averaged to yield a final overall rating. They are also weighted in a variety of ways according to a proprietary methodology developed at Gradient Analytics.

After measuring and weighting all of the factors and their constituent subfactors, StockScouter awards each stock a core rating. To determine the final overall rating, the core rating is then balanced against the standard deviation, or volatility, of the stock’s return over the past 12 months.