Piotroski: High F-Score Screen
|Piotroski: High F-Score||S&P 500|
|Five Year Return:||61.5%||16.6%|
|Ten Year Return:||28.2%||4.7%|
Numerous research studies point to the long-term success of using value strategies to select stocks. Value strategies build stock portfolios by seeking out stocks with low prices relative to variables such as earnings, book value, cash flow or dividends. However, most academic research rely on constructing large portfolios that beat the market on average with a few big winners, but also end up containing many losing stocks.
Recently Joseph Piotroski, an accounting professor at the University of Chicago Graduate School of Business, undertook a study of low price-to-book value stocks to see if its possible to establish some basic financial criteria to help separate the winners from the losers.
Piotroski's work starts with low-price-to-book-value stocks. Price-to-book value was a favorite measure of Benjamin Graham and his disciples who sought companies with a share price below their book value per share. While the market does a good job of valuing securities in the long-run, in the short-run it can overreact to information and push prices away from their true value. Measures such as price-to-book-value ratio help to identify which stocks may be truly undervalued and neglected.
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