Looking at that websites "about" section.. I think this says it all.
"80% of the score is based on past results, 20% is based on forward looking estimates. "
Well this just doesn't work for companies that are emerging into their "S curves". Not one bit.
Sadly they should have some extra indicator to figure out upon which companies it makes no sense to apply this approach to...but they don't as far as I can tell.
"Our proprietary screening process stacks up opportunities based on 27 valuation measures. "
Our value score is based on a simple priciple that past fundamental results mean something.
Well let me tell you something the emergence of oled into displays and lighting in the future make all past fundamental results meaningless.
Their approach is flawed beyond belief for companies engaged primarily in emerging technology diffusion.
No they aren't. They aren't even in the top 40... not to say they don't have a high "EVS" based on that web site. It is worth seeing how the EVS score may or may not be able to handle panl's story based on their ratio analysis. Frankly the site is new to me but the attempt from an accounting perspective to rank stocks is admirable...but there are so few companies that fit panl's situation...the last I checked I found about 6 total including LinkedIn which does land at #2 on their top 40 list. Once I have a bit more time I may have to pour over how they are missing the point of a high gross profit margin combined with a high growth rate... They also miss the point on LinkedIn. Somehow their scoring doesn't account for high gross margins eventually being able to justify current stock prices as revenue growth takes over and the higher initial expansion/growth costs are done... the higher gross margin kicks in as revenue soars. So to conclude be wary of Extreme Value stocks results until we can resolve whether they can handle all these ratios to what degree they rely upon bad data from analysts... sadly there is a lot.. 25% 5 year eg estimates have been wrong for years. How they handle high gross margins impacting operating margins as revenue expands is huge. I strongly suspect they haven't got their formulas trained for that... if you are at the beginning of an S curve your start up costs eat into your high gross margins to lower your operating and profit margins... and will throw the ratio analysts completely off track... as you go hockey stick into the S curve your revenues explode driving operating margins and profit margins much much higher. Can this web site scoring system take these kinds of unstable environments into account. I already know they can't... as Linked In was rated #2 on their list...
See business insider for their article "By The Way, LinkedIn's Profit Is Going To Explode" by Henry Blodget.
In the bleacher comment section I added a screen result
Using some of the criteria above and considering low debt, past growth, future growth and high institutional ownership:
Genomic Health, LogMeIn, Qlik, Universal Display, and Zillow join Linked in for a potentially bright future as well
Notice QLik is #5 on this websites overvalued top 40 as well., Zillow #22
so 3 out of 6 (half) of the gross margin stock screen are considered "most overvalued"...really?
Something is wrong then. It could be what we have here is a matter of timing...the accounting forces want the stock to be bought AFTER the ratios show up better once the S curve hyper growth kicks in with the gross margins... investors want to buy the stock BEFORE. They both fight out what it should be worth now. Clearly this website is failing in some kind of future value analysis as well. More research is warranted comparing Henry's methods to this website to figure out if improvements in scoring can be made... The question is if you know a company is going to experience a vast increase in revenues later due to high gross margins how much should you pay for it and how soon should you be willing to step up... It seems like the websites scoring is either thrown off by severely low balled numbers by analysts (like the 24.5 eg) or they are very reliant upon backward looking ratio's forecasting the future.
Generally speaking I think its important to figure out what these value investors are doing "wrong" with their scoring for these situations. Or figuring out they are right...could be but I suspect the former.
Clearly the likes of RC@DC can see right through the failures of this scoring system. Research DC's criteria and they would likely laugh the methods used in this websites approach out the window.