As investors, we want to invest in the best and avoid those heading for trouble, but it's hard to keep tabs on hundreds of companies. That's a lot of noise and we've all got lives to lead. Even though Stockopedia's StockReports provide a wealth of financial data, filtering out the most dangerous stocks can be hard to do and takes time.
But what if you could gauge financial health with a single number?
This is what the Piotroski F-Score sets out to do. Unfortunately, what the F-Score algorithm says for Technology operator Imimobile (LON:IMO) is not good. We'll get into this later, but first a bit more on what this number actually means.
Why Imimobile (LON:IMO) shareholders need to know the Piotroski F-Score
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.
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 Imimobile gets a lowly F-Score of 2 out of a possible 9. Food for thought for anyone looking to hold onto their money.
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