The screen we’ll now create is not purely value-based. Instead, it focuses on a mix of quality earnings, operational efficiency, and momentum.
Here’s a snapshot of the parameters we’ve used.
The first parameter focuses on Earnings Quality and cash Flow Strength. (Operating CF TTM / Profit after Tax TTM) > 1.5.
This ensures that the company's profits are backed by actual cash flow, reducing the risk of earnings manipulation.
The next one focuses on identifying stocks with Momentum & Price Strength. Price Momentum Score > 70.
This favors stocks that are already in an uptrend, making it ideal for trend-following investors looking for strong momentum candidates.
The third and fourth parameter focuses on Operational Efficiency & Profitability. EBITDA Margin TTM > 20% (Strong profitability) and ROE TTM > 15% (Efficient capital allocation)
These ensure that the selected companies are both profitable and have efficient management.
This screening strategy is ideal for:
Let’s look into the results now.
30 stocks are filtered using our parameters.
We’ll now backtest this screen and check its performance.
A crazy return of 3325%!!!
We’d like to point out here that it’s very important to not jump the gun and make hasty decisions on seeing such results. As you can see, the time horizon is more than 10 years.
It’s important to always be careful when making investments and back your strategies with a data-driven approach.
We’ll now see one more example.
