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.
The list of top-rated stocks is sorted first by overall rating. In the case of a tie, additional calculations are used, such as the expected risk of the investment and the amount of information available to compute the rating.
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