The Robur score is based on the criteria which we consider to have proved their usefulness in making investment decisions. Currently, we employ 16 criteria, and we give a company a positive or negative score for each one, according to how the numbers compare to set threshold values (for example, a price:earnings ratio of less than 12 gets a point, or a compound annual growth rate for operating income above 10% gets a point). You, the user, can set your own conditions by which scores are built up for the companies, by means of the User Dashboard.
Basis of the scoring system
We do not employ elaborate statistics, because the data quality of some items in company reports is inevitably low. With the best will in the world, the valuation of bank assets, or of an industrial company’s inventory, or a pharmaceutical company’s intangibles, cannot produce precise, verifiable numbers, suitable for complex statistical analysis. So our scoring system is based on creating pointers towards companies that look worth investigating further as potential buys (high scores) or sells (low scores). You should always then consider the company financials and make your own assessments from other research sources that you trust, including the actual company reports of shares you are considering.
Robur employs two sets of criteria. The first is the compound annual growth rate (’CAGR’), which we show for:
- Operating income
- Net income
- Earnings per share
- Cash from operations
- Capital expenditure
- Shareholder equity per share
A company that is consistently growing many or all of these can rightly be considered a good candidate for further research by any value investor: growth is at the heart of the value investing proposition. We also value CAGR because several of the measures are relatively hard to fiddle (we except net income), and so employ relatively robust numbers. They are also consistent across the wide spectrum of different sorts of businesses: consistent growth in operating income is a good sign whether you are considering an Asutralian ice-cream manufacturer or a Korean software house.
The second set is a series of indicators. Mostly these are familiar stock market measures:
- Goodwill as a percentage of the total asset value (some companies have almost all their total assets made up of goodwill); while there can be no rule about this, we view a high goodwill percentage as a warning flag, requiring full understanding of why this should be so, before we would consider investing.
- Ratio of the shareholder equity per share (more or less ’book value’) to the share price
- Price earnings ratio, used both to look for ’apparently cheap’ and ’apparently expensive’ stocks
- Price ’slider’ the position of the recent share price on a between the 52-week low and high prices
- The dividend yield
We calculate two ratios, which are approximations only – which is why they are labelled indicators, not fixed and final statistics:
- The ’Robur-M’ is a variation on the theme of the Altman-Z, an attempt to assess the comparative vulnerability of a company to running out of cash. The higher the value of the Robur-M, the more financially stable the company appears
- The Enterprise Ratio of the company is a conventional business statistic which attempts to compare market value, adjusted for debt, cash and minority interests, to operating income, basically as a measure of the attractiveness of the company as a takeover target (ie how many years would it take to earn back the cost of buying the company?) The lower the value of the Enterprise Ratio, the more attractive the company appears
The Robur score has a set of preset conditions which you can use of you wish. If you prefer, (but you need to be a subscriber to do this), you can use the Dashboard to set your own conditions. For example, if you value yield, you could set the yield threshold at 4% and score 2 if the company is above that level. On the other hand, if dividend CAGR is not something you consider important, you can remove it from the scoring system by setting the scoring to 0, whatever the value of the CAGR. This ability to set the scoring system to reflect your own investment thinking and planning is a valuable investment tool, and it is well worth while spending the short time needed to understand the process. The various criteria have “balloon” notes, on the Dashboard, to assist you.