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Why you need to look at Versarien's Piotroski F-Score (LON:VRS)

Jack Brumby

Versarien (LON:VRS) offers engineering solutions and operates through three segments: Hard Wear Products, Graphene Products and Thermal ProductsFor the fiscal year ended 31 March 2019, Versarien revenues increased 1% to £9.1m but the group's net loss widened by 79% to £2.5m

Unfortunately, applying the Piotroski F-Score to this small 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.

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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 Versarien

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 Versarien 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 Versarien fails in the graphic below:

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