Hi,
Please read this article to understand how we calculate Quality score - https://sharpely.in/knowledge-base/stock-scores/factor-scores/quality-score
I have 2 points to make for this specific case of RELIGARE:
- ROE is one of the factors that go into Quality score calculations. There are cash flow based measures such as CF RoA and and OCF margin where RELIGARE has a fairly decent number. Further, we also use “delta” (or change) in profitability measures over last 3 years (refer the paper mentioned in the article). Again, on these factors, RELIGARE’s scores are decent.
- Notwithstanding this specific case of RELIGARE, do note that there could be misclassification in some (small number) of the stocks. While we take utmost care and conduct a stringent data sanity to make sure that percentage of misclassification error is kept to minimum, these scores are calculated for over 4000 stocks in a completely rule based manner. Hence, bringing down the misclassification error to 0 is near impossible. Having said that, we are constantly iterating to bring down our misclassification error to as close to 0 as possible.
Continuing on point 2 above, we keep reiterating that the ideal way to use these stock scores is to create a strategy of diversified stocks (30-50 stocks) and not to use them for bottom up stock picking. When you use scores to create a large portfolio, small misclassification errors are easily drowned out. If you intend to use these scores for bottom up stock picking, let these scores just be a guide or a starting point for further analysis.
Hope this helps.
