Good quality companies can offer a lot of comfort to investors. They tend to be strong, stable, profitable firms that deliver predictable returns, have pricing power and can reinvest earnings at high rates. Firms at the other end of the spectrum, however, can be easily become a rough ride.
Stockopedia's Quality Rank offers a quick way to assess the types of profitability characteristics that make a company 'high quality', such as return on capital employed, because it is a composite score. It bundles up a lot of related information and translates it into one number that is easily comparable across stocks and markets.
HSBC's (LON:HSBA) Quality Rank raises more questions than answers.
What Stockopedia’s Quality Rank says about HSBC
HSBC has a Quality Rank of 49. While it is not a 'junk' stock, it is still lower quality than other investment candidates out there. These kinds of companies are perhaps more likely to encounter financial troubles or market share erosion in the years ahead.
This fate is not guaranteed, but it does suggest that more research is required in order to see if it has strengths in other areas. One way to do this would be to look at HSBC Value and Momentum Ranks on its StockReport.
Studies indicate that combining factors such as Value, Quality and Momentum is a more effective way of outperforming the market over longer time frames. That's why we have constructed our StockReports to give an instant impression of how well exposed Hsbc Holdings (LON:HSBA) is to these three factors. We go into greater detail on factor investing in this video.
Stockopedia helps you to identify return-enhancing factors such as Quality, Value and Momentum by analysing thousands of data points every day. To find out more about you find investment opportunities and analyse your portfolios then take one of our two-week free trials and have a look around.