Highly valued growth stocks fall the deepest when the substance is missing. The G-Score checks whether the growth is fundamentally backed.
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.
Once enough history is available, the backtest chart for this strategy will appear here.
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. Above the upper threshold: a high match with the profile.
These terms describe only the match with the criteria, not a recommendation to buy or sell.
Return on assets (ROA) and cash-flow return are measured against the industry average, not absolute thresholds.
Operating cash flow must exceed net income: book profits without cash coverage do not count.
Above-average R&D and capital expenditure depress today's profits but secure tomorrow's market position.
All comparisons run sector-relative: a software stock is measured against software, not utilities.
For growth investors who do not avoid expensive stocks but want a safety net: the G-Score answers whether fundamental strength stands behind the high valuation or just a story.
While the classic 9-point balance-sheet check was developed for cheaply valued stocks, the G-Score targets the opposite: highly valued growth stocks. Partha Mohanram showed in 2005 that winners can be separated from "fallen stars" in the expensive market segment too: with binary criteria relative to the industry. If a company beats its industry average on returns on assets and cash flow, if operating cash flow covers profit, and if it invests above average in research and fixed assets, the high growth is fundamentally underpinned. Whoever scores below average everywhere is a crash candidate whose valuation rests on expectations alone.
Five binary criteria, one point each: return on assets (ROA) above the industry average, cash-flow return on assets (CFROA) above the industry average, operating cash flow above net income (earnings quality), R&D intensity above the industry average and investment intensity (CapEx relative to total assets) above the industry average.
The investment criteria are the clou of the model: high R&D and CapEx spending depresses current profit, conservative accounting therefore punishes exactly the companies investing most in their future. The G-Score turns that around and treats above-average investment as a quality signal. The upper threshold is 4 points (small caps: 5); whoever reaches only 0 to 1 points is a classic crash candidate in the expensive segment.
Profitability: (1) ROA above the industry average, (2) CFROA above the industry average.
Earnings quality: (3) operating cash flow above net income.
Investment: (4) R&D spending relative to total assets above the industry average, (5) CapEx relative to total assets above the industry average.
Documented deviations: five of the eight original criteria are implementable, advertising intensity and the variances of returns and sales are dropped for lack of data; the thresholds are scaled from 8 to 5 criteria accordingly. Comparisons run against industry averages instead of the medians used in the original; with skewed distributions (single outliers) this can make criteria stricter or milder.
In the backtest no historical industry averages are available: the four industry-relative criteria are neutralised there, only earnings quality remains scoreable. The rule-coverage panel in the backtest scales the thresholds accordingly and discloses this transparently; the live scoring, by contrast, uses all five criteria.
For growth investors as a quality filter over the expensive market segment, ideal combined with a momentum or Rule-of-40 view that measures the growth itself.