smallcase Special

Value Momentum Rank

The data item is a percentile ranking (ranking between 0 -100) of the stock, against all other stocks in the country, based on recent valuation as well as price momentum of the stock. The rank is calculated taking into consideration 2 different factors:

  • Valuation of the stock : Valuation of a stock refers to an attempt to understand the true worth of the stock. Valuation is done taking into consideration the expected future growth of the company vis a vis its historical growth as well when compared to expected industry growth.  
  • Momentum of the stock : Price momentum is the rate of change in price of a particular stock. Momentum investing is a strategy that tries to understand the existing trend in the market and attempts to capitalize on the same. So if a momentum investor feels that the bull run in the market will continue he/she will buy stocks whose prices are increasing in order to benefit from the trend.

A company might be trading at discount to the sector either because the stock’s future earnings potential are low or because market has not noticed its earnings potential and hence there is a temporary pricing mismatch. Combination of valuation and momentum factors, in the above data item, helps differentiate between stocks that are undervalued due to fundamental issues and ones that are genuinely undervalued and gaining favour with investors

Higher the rank, stronger the value momentum of the stock. For example an overall score of 95 indicates that the stock is better than 95% of it’s peers

Price Momentum Rank

The data item is a percentile ranking (ranking between 0 -100) of the stock, against all other stocks in the country, based on recent historical price performance. The rank is calculated taking into consideration the price movement of the stock over the previous 12 months as well as the strength of price movement compared to its industry peers

As discussed earlier, price momentum is the rate of change in price of a particular stock. Momentum traders and investors believe that stocks that have trended up over the previous 3-12 months will continue to move up faster than the market over the next 3-12 month period. Hence buying stocks with higher price momentum might increase the possibility of earning higher price returns

Higher the price momentum rank, stronger the price momentum. So if the overall score is 97, it indicates that the security has better price momentum than 97% of the stocks

Earnings Quality Rank

The data item is a percentile ranking (ranking between 0 -100) of the stock, against all other stocks in the country, based on sustainability of earnings

The rank is calculated taking into consideration profit margin, efficiency of assets in generating sales, operating cash flow etc. Earnings quality is defined as the extent to which past earnings are reliable and are likely to persist. High earnings quality indicate that the company’s fundamentals are expected to further strengthen and vice versa. Higher the earnings quality rank, more likely the company is able to sustain its earnings

Price to Intrinsic Value Rank

The data item is a percentile rank of the stock, calculated based on the price to intrinsic value (IV) ratio of the stock against all other stocks in the country. Lower the P/IV of a company, higher the corresponding rank. So if a company has a rank of 98, it means that it is undervalued compared to 98% of the stocks. More undervalued a stock is, higher the upside potential

Intrinsic value refers to the investors’ perception about the actual value of the company. Different methods of calculating intrinsic value, taking into consideration earnings per share, cash flow or dividends per share are available

Fundamental Score

This data item is a smallcase proprietary score between 1 and 10 assigned to stocks listed on NSE. The score helps rank the stock versus all other stocks in the respective sector. Higher the score, better the company. The score is calculated taking into consideration factors like valuation, profitability, market share growth, financial health and earnings growth of the company

For example – among personal product companies – Bajaj Corp is ranked the highest with a composite score of 7.50, Colgate Palmolive with a score of 5.05 ranks number 5 within the sector and Emami with a score of 3.83 is one of the lowest ranked stocks in the sector (Feb 2017)