Our in-house point system of 8 rules: quality and valuation compared with the company's own sector, plus growth and market confirmation, refreshed daily across the entire stock market.
Save the strategy and StockScorer checks its rules for you every day. You'll get a heads-up whenever a stock crosses the upper or lower score threshold.
MSCI World over the same period: +240.1 %
Past performance is not a reliable indicator of future results.
| Score | Number of stocks |
|---|---|
| 0 | 3,259 |
| +1 | 1,583 |
| +2 | 2,877 |
| +3 | 1,624 |
| +4 | 1,999 |
| +5 | 1,449 |
| +6 | 1,295 |
| +7 | 1,023 |
| +8 | 661 |
| +9 | 270 |
| +10 | 190 |
| +11 | 35 |
Every stock runs through the same disclosed rules. The points add up to a score, traceable down to the individual rule.
Each rule checks a metric against a threshold, for example ROE above 15 %.
You decide how much each rule counts: from +1 to +3 or −1 to −3.
The sum is the score. That gives three classes: high, medium, low match.
These terms describe only the match with the criteria, not a recommendation to buy or sell.
Greenblatt's return on capital, return on equity and free cash flow margin each have to sit above the median of the company's own sector.
The free cash flow yield, meaning free cash flow relative to market value, has to sit above the sector median.
Revenue growth above 15% and three-year earnings growth of more than 15% a year.
Over twelve months the share price has to have outperformed the overall market by more than 20 percentage points.
These exact rules run over every stock daily.
After a free sign-up: the full profile in the rule editor to copy, adjust thresholds and save as your own starting profile.
See & copy all rulesThe backtest shows a total return of +280.8%. The MSCI World reaches +240.1% over the same period.
Survivorship-free since June 30, 2015: the index composition is applied point-in-time.
Historical period, quarterly rebalancing, no taxes or fees. Past performance is not a reliable indicator of future results.
Purely mechanical rule application, no curated-list effect: stocks with a high match can fall just like any other stock.
The StockScorer Score is for anyone who wants to compare companies fairly across sector lines, whether as a starting point for their own scoring or as a permanent all-rounder. It asks for quality, an attractive cash flow valuation and growth at the same time, each measured against direct competitors, and on top of that a share price that already backs the case. For a pure dividend, deep-value or defensive lens, the dedicated strategies go deeper.
A 20% return on equity is outstanding for a utility and fairly ordinary for a software house. Scoring stocks against fixed cut-offs therefore keeps favouring the same sectors and overlooks the leaders everywhere else. The StockScorer Score, StockScorer's default strategy, takes the other route: every stock has to hold its own against its direct competitors. Return on capital, return on equity and free cash flow margin must sit above the median of the company's own sector, in its stronger half, and so must the free cash flow yield, which serves as the valuation measure. On top of that come revenue growth above 15%, three-year earnings growth of more than 15% a year and a share price that has beaten the market by more than 20 percentage points over twelve months. Out of a maximum of 11 points, 9 or more mean a high match and anything below 6 a low match. Banks, insurers and real estate companies are excluded, because return on capital and free cash flow say nothing reliable about them.
At its core sits the sector comparison. For every sector of the market, from technology and healthcare to utilities, StockScorer works out each day the median of a given metric, the value that separates the stronger half of companies from the weaker one. The peer group is the large and mid caps of developed markets; in the backtest it is the stocks that belonged to the universe on each rebalancing date. A stock only earns the points if it clears that value within its own sector. Because all four metrics count at once, only companies that lead on quality and valuation across the board reach the full score. A chipmaker is therefore judged against other semiconductor and technology names, an industrial group against industrials. Fixed cut-offs that are demanding in one sector and meaningless in the next drop out of the picture.
Four metrics run through this comparison. Three describe quality: Greenblatt's return on capital (operating profit relative to the operating capital employed), return on equity and free cash flow margin. The fourth describes valuation: the free cash flow yield, in other words how much free cash flow the business generates relative to its market value. A high cash flow yield compared with the sector means the market is paying less for the business than for comparable companies. Two rules test growth with fixed thresholds, because growth means the same thing in every sector: revenue up more than 15%, earnings up more than 15% a year over three years. The last rule asks for market confirmation: over twelve months the share price has to have outperformed the overall market by more than 20 percentage points.
The rating follows from a maximum of 11 points: a high match from 9 points, a low match below 6, a medium match in between. The thresholds are the same for every size class. Within the same rating, large companies from 30bn euros of market value are ranked ahead of mid caps from 2bn euros, and only then does the point total decide. An exclusion sits ahead of all of this: banks, insurers, financial services firms and real estate companies receive a low match regardless of their point total.
Every quality, valuation and growth metric in the score comes from the companies' quarterly reports. Each report moves cash flow, margins and growth rates, and the sector comparisons shift with them: a company above the sector median in spring may have been overtaken by competitors by the autumn. Market confirmation, too, is a signal that wears off within a few months. A selection that is only reviewed once a year therefore relies at times on figures that are more than a year old. The strategy is designed for its ratings to be read afresh with every reporting season, and the backtests on this page accordingly use a quarterly rhythm.
Exclusion: companies from the financial sector (banks, insurers, financial services) and from real estate receive a low match regardless of any points scored.
Free cash flow yield above the sector median (+2): more free cash flow relative to market value than half of the comparable companies.
Greenblatt's return on capital above the sector median (+2): the business earns more on its operating capital than most of its competitors.
Return on equity above the sector median (+1): an above-average return on equity in a direct comparison.
Free cash flow margin above the sector median (+2): more of the revenue is left over as free cash flow than at most competitors.
Revenue growth above 15% (+2): the business is growing clearly.
Three-year earnings growth of more than 15% a year (+1): growth has reached the bottom line over several years.
Share price more than 20 percentage points ahead of the market over 12 months (+1): the market already backs the case.
The maximum attainable total is 11 points. Within the same rating, large caps (from 30bn euros) rank ahead of mid caps before the point total counts.
Its strength is the fair comparison. Because every quality and valuation metric is measured against the company's own sector, a machinery maker can reach a high match just as well as a software house, provided it leads its field. Cash flow figures are also harder to dress up than reported earnings. And because quality, valuation, growth and price action all have to line up at once, both expensive growth stories without cash flow and cheap stocks without prospects fall through the net. In the backtest on the Developed World universe since 2015, point-in-time and rebalanced quarterly, the score was ahead of the MSCI World in most time windows; the current figures are shown in the backtest on this page.
The flip side belongs here just as plainly. The strategy is trend-following: it requires the share price to have risen clearly already, so it buys strength rather than weakness. Over shorter periods it fluctuates more than the overall market. Because the leaders of their sectors often come from technology and from the US, the selection can lean towards both. And the rule set was built over exactly the period the backtest covers: past results say nothing reliable about future ones.
Limits in the data and in scope: the score does not rate banks, insurers or real estate companies, because return on capital and free cash flow are not meaningful there. At banks, deposits and lending run through operating cash flow; at real estate companies, property purchases shape the picture. The sector comparison evens out different orders of magnitude, not a lack of meaning. Where a value is missing for a sector or a stock, the rule in question awards no points, which tends to push the score lower.
For newcomers as the pre-selected default during onboarding, and for anyone who wants to make companies comparable across sector lines. The score works best when its ratings are read afresh with every reporting season. Anyone deliberately focused on dividends, on low absolute valuations or on financial stocks will find dedicated strategies for that. All rules, their point values, the size-class boundaries and the score thresholds can be customised in the rule editor.