What do Value, Growth, Profitability, Momentum, and EPS Revisions mean, and why are they important to investors?
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Some of the core building blocks to the basics of investing are investment styles known and referred to as:
- Value
- Growth
- Profitability
- Earnings Per Share Revisions (EPS)
- Stock Price Momentum
The golden rule to investing is ‘Buy Low, Sell High’. This concept rests at the foundation of these building blocks.
As any good shopper knows, compare and contrast is an essential process to pinpointing the best values. This is exactly what Seeking Alpha’s Quant Ratings accomplish.
Quant Ratings are an unbiased, instant quantitative characterization that displays a visual grading system (A+ through F) of each stock’s investment style and their underlying financial metrics.
Our quantitative ratings system collectively identifies and targets stocks that possess the best characteristics of each of the fundamental investment building blocks. This investment strategy is based on highlighting stocks that offer strong growth at a reasonable price, otherwise known as GARP. See Top GARP Stocks
Quant Ratings are a simple but powerful tool that every investor should use to check and assess the quality and health of the stocks they own.
Below are answers to a couple of popular questions we receive regarding the fundamental building blocks mentioned above.
Why is Value important in investing?
Value investing is an investment strategy that involves picking stocks which are valued at a discount compared to the average of other stocks within the sector, as well as, comparing the price of the stock to its historical average. Investors utilize financial ratios, such as stock price divided by earnings, to value stocks. Ratios trading for less than the average of the sector are deemed a good value. See Example Value Metrics.
What does Growth actually mean?
Growth investing involves picking stocks that are deemed to be growing faster than the average of the sector or the company’s historical growth rate. Typically, investors measure growth by assessing how fast a company’s revenues or earnings are growing compared to the competition or past levels. Companies with strong growth rates are viewed as healthy and dominant in their industry. See Example Growth Metrics.
How is Momentum measured as an investment strategy?
Momentum investing is associated with picking stocks that are appreciating (in stock price momentum) faster than the average of the sector. Typically, investors measure momentum by assessing how fast a company’s stock price has increased or decreased over a period of time - such as the last 12 months or 3 months. The measure is a basic indicator of supply and demand. Companies with stronger price momentum are viewed to be in greater demand than other stocks in their sector. See Example Momentum Metrics.
Why is Profitability important?
Investing based on profitability is an investment strategy that involves picking stocks which are deemed to be more profitable than the average of the sector or the company’s historical profit levels. Typically, investors measure profit by assessing a company’s financial gain. More specifically, the difference between the amount earned and the amount spent in buying, operating, or producing a product compared to the competition or past levels. Companies with strong profits are viewed as healthy and dominant in their sector. See Example Profitability Metrics.
What are EPS Revisions?
Investing based on professional analyst’s earnings per share (EPS) revisions is an investment strategy that involves picking stocks which are deemed to have a higher quantity of upwardly revised estimates than the average of the sector or that of historical levels. Companies with a higher quantity of revisions are viewed as having faster than expected earnings growth compared to their sector. See Example EPS Revision Metrics
The reason investors purchase stocks is that they provide the highest potential financial returns over the long term. Historically, no other type of investment tends to perform better. The intelligent investor sticks to the old adage ‘never put all your eggs in one basket’. This principal is one of the reasons why Seeking Alpha scores and employs the multiple investment styles listed above, (GARP) for selecting stocks as opposed to being pigeonholed into a single style such as just value or just growth.
Additionally, smart investors spread out their risk by building a diversified portfolio of stocks that is allocated across different sectors. Seeking Alpha’s ‘Screener’ tool can help you achieve this diversification.
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