Is the Challenger share price (ASX:CGF) attractive at current levels?

Some stocks excite investors by talking up future growth prospects, while others point to heavily-adjusted vanity metrics.

Honing in on the data that tell us what’s really going on can save us a lot of time and pain. At Stockopedia, we read through academic studies and backtest strategies to identify these key measures. One of the most promising we have found so far is Piotroski’s F-Score - and the F-Score has good news for shareholders of mid cap Insurance Challenger (ASX:CGF).

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The Piotroski F-Score's secret sauce

Followers of celebrated accounting professor Joseph Piotroski are well aware of the checklist that made him famous at the turn of the millennium. Piotroski is behind the F-Score: a single number that acts as both a quality and fundamental momentum screen. In quantifying the financial trend of a company, the F-Score differentiates itself from other metrics by focusing on the direction of travel.

The F-Score is made up of nine checks split up into three main areas of financial analysis. First is profitability, where it examines operating profits and cash flow to make sure the business can sustain itself and pay dividends. Then come three checks on the capital structure of a business, followed by a final look at the firm’s operating efficiency.

Challenger’s (ASX:CGF) F-Score: what does it mean?

Challenger gets an F-Score of 8 out of 9. In his landmark academic paper "Value Investing: The Use of Historical Financial Statement Information to Separate Winners from Losers", Piotroksi showed that by investing in companies scoring 8 or 9 by these measures over a 20-year test period through to 1996, investor returns could be increased by an astounding 7.5% each year.

Find more high-quality stocks

This F-Score suggests Challenger is a promising investment candidate and is worthy of further research - but it is only a first step. Higher F-Score stocks often trade at a premium compared to other stocks. Investors like to pay up for quality but it's important not to pay too much. We suggest checking the various value factor measures for Challenger on the group's StockReport.

For years, the Stockopedia team have been poring over studies to see what works in investing. That's how we found the F-Score, but that's not all we've found... So take a two-week free trial today to see how Stockopedia can help you to build a better portfolio.