I discovered a nice tool to filter on every stock you pick. It is important to search for stocks that have following characteristics:
1) low P/E ratio
2) high earnings growth
3) high dividend yields
The O-metrix tool will calculate a ratio based on this formula:
O-Metrix = (Dividend Yield + EPS Growth) / (P/E Ratio) X 5
The higher the O-Metrix score, the better the company. I would pick companies with an O-Metrix score higher than 3.
The O-metrix tool has one Achilles vulnerability and it's quite a big one too. It doesn't take in account the Price to Book ratio. It is very risky to buy companies with a high Price to Book ratio as they can fall very hard when their earnings growth plunges.
What is a "high" Price to Book ratio?
BeantwoordenVerwijderenThat depends on many things. Which sector, which market capitalization, which earnings. I'd say above 2 is high.
BeantwoordenVerwijderen