Solgold (LON:SOLG) is an Australia-based copper, gold exploration and development company with assets in Ecuador, Solomon Islands and Australia.
The group has yet to generate revenue and losses more than doubled in the fiscal year ended 30 June 2019 to $31.9m. Unfortunately, applying the Piotroski F-Score to this mid cap doesn't do much to dispel these 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 Solgold
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 Solgold 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 Solgold fails in the graphic below:
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