Screening on Profit Margins
by Doug Gerlach, President, ICLUBcentral Inc.
A careful analysis of a company’s profit margins is a good way to better understand the quality of that company and its management. In Toolkit 6 and on the BetterInvesting Stock Selection Guide (SSG), a company’s pre-tax profit margins are used to measure the consistency of a company’s fundamental performance over time.
The profit margin is sometimes known by other names, including % pre-tax profit on sales in Section 2A of Toolkit 6 and the Core SSG, and Avg 5Yr PTI (%) in MyStockProspector.com. “Income” and “profit” can be used interchangeably, so the average five-year pre-tax income percentage MyStockProspector.com is actually the same value that you’ll find in Section 2A of the SSG, just with a different name.
I often use profit margins as a shorthand way to describe the same figure, meaning the pre-tax profit margin as used in our tools.
In MyStockProspector.com, there are several ways to screen using profit margins to find companies with outstanding profitability metrics.
In the Quality field list group, you can screen on:
• Avg 5Yr PTI (%). The 5- year average percentage pre-tax income to sales as in Section 2A of the Stock Selection Guide.
• Trend PTI. The trend of the 5-year % pre-tax profit as seen in Section 2A of the SSG, on a visual scale from steadily upward (++) to Even to steadily downward or erratic (--).
• PTI Rating. The same as the Trend PTI, but expressed numerically, with 6 being steadily upward, 3 being Even, and 0 being steadily downward or erratic.
Because profit margins vary considerably by industry group, it is usually not very useful to screen on absolute values, such as looking for companies with Avg 5Yr PTI greater than 25%. That’s why you can use the Industry Average feature to identify companies that have 5-year profit margins greater than the average of each company’s industry group.
You can use this feature in MyStockProspector.comto find companies with above-average profit margins.
First, select the Avg 5Yr PTI (%) field from the Quality group.
Next, right click in the “minimum” box of the Avg 5Yr PTI (%) field, and select Ind Avg -Current Field from the popup box.
Only companies that have 5-year profit margins that exceed the average 5-year profit margins of their own industry group will pass the criteria. Go ahead and finish setting up your criteria and report, knowing that these companies have better quality attributes over the past five years then companies that don't pass the screen.
You can use the Industry Average – Current Field feature on any criteria you create in either the minimum or maximum entry box. You might search for companies with P/E Ratios below the average P/E Ratio of their industry groups, for instance. Or you could use it on the PTI Rating field above, which is one reason that this criteria exists in addition to the selector boxes used in the Trend PTI field. Searching for companies with Section 2A trends that are greater than the average of their own industry group is another way to refine your list of candidates. (Note: if the industry average pre-tax margin trend is down or erratic, it’s possible that companies with less than desirable trends would still pass your screen.)
I think this is one of the best ways to identify quality companies, and no other screening tool has this capability. Subscribe to MyStockProspector.com today and find great candidates for your stock portfolio! Subscriptions start at just $9.99.
Or create your own custom Ultra Bundle with MyStockProspector.com and any of our other tools. Your savings will grow as you add products and add years to your bundle, maximizing your stock research dollars.
New Video: Power Stock Searches with MyStockProspector
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Share Your Stock Screens via Email
We have recently added a new feature to MyStockProspector, the ability to send a link to your stock screen results via email.
In the Results header bar of your completed screen, you will find a new icon at the far right side of the header. Move your mouse over the small envelope icon and text appears with the offer to "Email results."
Click the icon, and a popup window allows you to enter the email addresses of your chosen recipients as well as a brief message. Your recipients will receive a link that will allow them to view the results of your stock screen without a MyStockProspector.com login of their own. They will not be able to edit the criteria or the report, however, and the link will expire in two weeks.
This feature is a great way for every investment club to take advantage of the power of MyStockProspector.com. One member is the designated stock screener who can search for stocks to fill holes in the club's portfolio, while the rest of the club can review the results and choose the best looking candidates for further review.
MyStockProspector.com Now Faster than Ever
Our engineering team recently released some behind-the-scenes upgrades to the MyStockProspector.com stock search tool that have optimized the website.
We have a new charting engine in place which improves the popup Quick View graphs by displaying the actual data points on the graph as you move your mouse across the screen.
We have also adjusted the behavior of the fixed ticker symbol column so that it doesn't take up as much room, allowing for better horizontal scrolling in the results screen.
With respect to the speed that results are delivered and displayed in your web browser, the code has been optimized to reduce the number of times the application needs to talk to the MyStockProspector.com serve. This should result in slightly faster display times whenever you view the results of a search.
As Seen in AAII's Computerized Investing
The First Quarter 2014 edition of the Computerized Investing newsletter published by the American Association of Individual Investors (AAII) features a profile of MyStockProspector.com.
MyStockProspector.com is the powerful stock screening tool produced by ICLUBcentral Inc. The web-based screener supports long-term stock searches using user-customized criteria, and is the perfect complement to users of Toolkit 6 or BetterInvesting's SSG Plus.
In their write-up, the AAII editors discussed the various features of the program, including the "junk" screen function, the criteria categories, the quick-view graph, and the use of conditionals.
Annual subscriptions for MyStockProspector.com are still available for a limited time at the charter rate of #39.99, a savings of $30 off the regular price. This special price will expire soon, so now is the time to sign up or renew a subscription.
Some Recent Enhancements
In the last couple of weeks, we've rolled out some enhancements to MyStockProspector.com.
If you have a Report with many columns, scrolling to the right on your screen can make it difficult to identify which company appears on which row. Now, the left-most column of the results screen will always remain fixed with ticker symbols of each company in the report.
In the past, if you had attempted to sort results by Exchange or Industry, you might have experienced some odd results. The values for those fields are stored in our database numerically, then converted to text in the results display. As a result, sorting on those columns didn't appear to provide any meaningful change. We've fixed this, so now you can sort these columns successfully.
POWER USER TIP: Sorting by Industry Group is often useful when reviewing the results of a stock search. If several companies in the same industry appear in your search results, it may indicate that some industry-wide is affecting investor expectations for many companies, which in turn may be a signal that a high-quality company may be being penalized for the sins of other companies, or that it may be best for the time being to look at another industry for candidates.
Reviewing Recent Quarterly Growth
On the Quick View Graph that you can access from any screen results page, we've added points that represent a company's recent quarterly updates.
For any quarters that have ended since the company announced its last fiscal year, points now appear in the current year for sales and EPS. These represent the trailing twelve months' results and give you a quick visual check on the current progress the company is making. Often, a company appears undervalued on the basis of its historical annual growth -- but upon further investigation, recent quarters show good cause for the price to have fallen.
For those subscribers who are familiar with our Toolkit 6 program, this is the same technique we use on the Stock Study graph to represent recent results.
Searching for ADRs
You can now use our new ADR criteria to include or exclude American Depositary Receipts (ADRs) from your searches. ADRs are bundles of stocks that trade on a U.S. exchange but represent shares of non-U.S. companies. You may wish to specifically avoid ADRs in your searches, or specifically include them to help diversify your portfolio internationally.
To use this feature, go to the Other category, and add ADR to the criteria builder. Then select True or False, depending on whether or not you wish to include or exclude ADRs from your search.
Enhanced Industry Averages
We have released a change in the way that industry averages are calculated in the MyStockProspector database. The tool has always been able to display industry averages for all of the fields in the database -- just search for entries where the EXCHANGE = INDUS -- but we have always used simple averages for these values.
With our most recent update, we now weight all industry averages by the revenues of the companies in that industry. This should offer some more relevant data points for comparisons of companies within an industry under study.
Avoiding or Focusing on Chinese ADRs?
In Doug Gerlach's Lunchtime Learning Webinar from February 2013 (video archive available here), Doug showed how users could eliminate Chinese ADRs using the "Junk Screen" feature of MyStockProspector. As Doug related, in many of his searches, these companies appear in the results, but he's not interested in this type of company at present, so he added a criteria to his junk screen to eliminate Chinese ADRs as identified by their ticker symbols.
If you'd like to add the tickers of Chinese ADRs to your Junk Screen, here are two sets of symbols, courtesy of Doug, that you can add to your Junk Screen. (They are broken into two sets because of a limit on the number of characters that MyStockProspector allows in any field.
Select the Symbol criteria field (in the Other category), use OR as the condition for each set of ticker symbols, and use "in" as the operator. Then paste these symbols into the Criteria field:
Of course, this list will change over time, but in the meantime it serves to streamline your search results.
If, on the other hand, you are interested in investing in Chinese ADRs, you can certainly use these tickers to build a screen where you search only within that set of tickers.
Two Bug Fixes Released
Based on user feedback, our engineering team identified two "bugs: on the MyStockProspector.com website. We've released two enhancements to the tool that take care of both of these issues.
The first was a problem when saving a screen that included a criteria that compared a value to an "Other Field." For instance, I have a screen that looks for companies that have been growing dividends on a regular basis, but I don't want dividends to grow faster than EPS. As a result, one of the criteria in the screen is that Historical 10 Year EPS Growth is greater than Dividend Growth. This screen would work, but the screener would stop recognizing that criteria as you adjusted the report or saved the screen to My Saved Screens, forcing you to re-select that field. This issue has been fixed.
The second problem was related to the Average Yield field. This field is the average dividend yield of the last five years, but it was being handled as a decimal to two places instead of being displayed as a percentage, so it was almost always 0.00 or 0.01. We are now displaying that field correctly, so screens that incorporate Average Yield will give you the results that you expect.
We continue to monitor problems and made adjustments as necessary. Please feel free to share your feedback and suggestions with us using the Customer Support link in the Help section, or by visiting http://www.mystockprospector.com/Tabs/Help/support-ticket.aspx.
Download MyStockProspector.com Presentation Handout
On December 12, 2012, Doug Gerlach demonstrated the MyStockProspector.com website for BetterInvesting's TickerTalk webinar. In the presentation, Doug showed some very cool advanced tips for using the site. Here is a copy of the handout for download:
MyStockProspector.com handout (PDF format).
Download the MyStockProspector User Guide
We have just released a 21-page User Guide for MyStockProspector.com for download. It is in PDF format and covers the basic and more advanced features of our screening tool.
Download your copy today!
A Video Introduction to MyStockProspector.com
Learn how to find superior stocks for your portfolio using MyStockProspector.com. This unedited video archive of Doug Gerlach's webinar presents an overview of the subscription-based stock screener website and how to build stock screens to fit your personal criteria.
In Doug's webinar, he demonstrates how to use Pre-Defined Screens, build a custom screen with your personal criteria, utilize the Junk Screen function to eliminate a "undesirable" companies from your searches, search by comparing a company's results to its industry averages, and much more.
You may view or download the video here: An Introduction to MyStockProspector.com. The webinar is about an hour long.
MyStockProspector.com is Launched!
MyStockProspector.com is officially launched! Subscribe now to save 40% on a subscription and begin screening for high-quality stocks for your portfolio. For a limited time, you can purchase an annual subscription for just $39.99 instead of the regular price of $69.99.