Silence Therapeutics (LON:SLN) is primarily involved in the research and development of pharmaceutical products. The Company's technology harnesses the body's natural mechanisms to create therapeutic effects within its own cells.
This technology might one day be worth a lot of money, but for now the group is not generating any revenue. Unfortunately, applying the Piotroski F-Score to this small cap raises some concerns... We'll get into this later, but first a quick refresher on what the F-Score means.
The Piotroski F-Score: one indicator to rule them all?
The Piotroski F-Score is a nine-strong checklist split up into three sections, each looking at a different part of a company's financial situation. Its secret sauce is that, unlike most ratios, the F-Score looks more deeply into the direction in which a company’s financial health is moving. Keeping on top of these trends can help us stay ahead of the game.
When a stock gets beaten down it ends up in the bargain basement of the stock market. From here there are generally three outcomes. The stock either:
- Stumbles along, zombie-like,
- Tumbles into administration, or
- Recovers emphatically
Stanford Finance Professor Joseph Piotroski wanted to sort the wheat from the chaff. After settling on the F-Score, he produced some astonishing results.
Why the F-Score does not like Silence Therapeutics
Piotroski found that weak stocks with an F-Score of 2 or less are five times more likely to either go bankrupt or delist due to financial problems. Working our way through Piotroski's checklist, we can see that Silence Therapeutics gets a lowly F-Score of 2 out of a possible 9. Food for thought for anyone looking to hold onto their money. We can see which areas of the checklist Silence Therapeutics fails in the graphic below:
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