Those of you with a brokerage accounts at Schwab may have noticed their Stock Screener tool under the Research tab. I tried to create a screen that would uncover growth stocks similar to those discussed on this board.
After fiddling around, I’ve managed to create a simple 4-step screen, where, out of a universe of 3,500+ stocks, only 23 stocks currently pass all 4 steps. And, out of those 23 stocks, 6 are actively discussed here. Here are the screen steps.
Growth stock screen steps
Market cap >= $1 billion
Revenue Growth (Most Recent Qtr.) vs. Year Ago Qtr. >= 30%
Debt to Equity Ratio <= 3
Price change last 6 mo. >= 20%
Here is the screen shot of the above criteria as I entered them into the Schwab screener: https://imgur.com/a/Dn9F6d7
Below are the 23 stocks that currently pass the screen:
This screen may be a good starting point for finding other companies that have good growth potential. If you change the last step to “Price change last 12 months >= 50%”, then 38 companies currently pass, of which 11 stocks are discussed here, including ABMD, NEWR, and SQ.
Of course, this is a purely quant screen, and you can’t apply criteria like “Founder Led” or “SaaS Industry”. But it could be a good source for new ideas.
How does the result of number of companies increase from 23 to 38 when you have increased the growth rate in criterion number 4?
Criterion no. 4 was price change percentage, not growth rate. Note also that I said that the look-back period was changed from 6 months to 12 months. 38 companies returned more than 50% in the past 12 months, whereas only 23 companies returned more than 20% in the past 6 months.
Price increase and/or decreased of more than 50% (up and down)?
Either way, I have one objection to this last step, it relies on an arbitrary starting point which can skew the result significantly. Only two appear on the Klein charts list which requires a minimum of 16 years worth of price data. These charts use a best fit line (the red line) to calculate the “Average CAGR” to alleviate this issue.
If you are willing to search by stock price as the primary factor, you can use my BMWM stock screener based on Mike Klein’s data – the Klein charts. Updated weekly on Sundays.
Yes, that last step means that the price had to increase by more than the given percentage, so I’m looking for stocks with strong upward price momentum in addition to high annual sales growth and relatively little debt.
I do agree that the look-back period of 6 months or 12 months is arbitrary, but I think that both those periods are good for discovering momentum stocks.
I hope you don’t mind some comments from someone who screens for companies on a regular basis. (I use SI Pro’s database, with my own custom screens.)
Screen Steps
<$1b. Fine, what about an upper limit? Do you want to catch a Facebook or GOOG? (Maybe you do.)
30% makes sense to me.
I would wager that this step did not toss out any meaningful companies. (Does Schwab screen tell you how many were scratched at each step?) Why an arbitrary 3? That’s awfully high. Your passing companies have a high D/E of 1.16, not even half of your upper limit. Finally, while debt is certainly important in evaluating a company, is it one of the 4 major steps in screening for fast growers? Methinks its priority would be farther down the list, maybe #10?
I understand the desire for price momentum, but especially in this market (tech is still down considerably) this screen will miss many great companies with prices that are temporarily down considerably from their highs. Not coincidentally, 99% of those have dropped within your time frame of the “last 6 months.”
Misc.: You have no requirement for the bottom line whatsoever, e.g., profit or decreasing losses.
You ended up with a decent list. I wonder how much of this is a matter of luck, or whether Schwab had other screen factors within the original universe of companies. For example, SI Pro starts with over 7,000 companies. Are these US-only stocks? Have they ruled out ADRS? Does it include financial firms such as banks and lenders?
In no way do I mean to rain on your parade, and I applaud the effort. But my own experience in screening says that applying only 4 simple steps (any 4 steps) can not and will not, result in a meaningful watchlist on a consistent basis. Add to that the wasted (IMO) step #3, and you are down to 3 meaningful steps, which I maintain is not nearly enough. If tech stocks were not recently hammered, I suggest passing companies on your list might increase several fold, maybe as much as 7-8 times. And what would that tell you, except that your parameters are too loose?
FYI, the MechanicalInvesting board here tracks dozens of screens every week, all of which have been thoroughly back-tested. While important IMO, back-testing is beyond my current abilities.
Schwab appears to have 11,203 stocks in it screener, although not every stock has every property, so the universe might be smaller once a category is selected. One can certainly tell how many each step has eliminated by comparing to the number left after the prior criterion. E.g., for these criteria, after each step there are these number of companies.
Match Total
Step This* Match
1. 2314 2314
2. 1330 379
3. 5590 346
4. 695 23
So, yes, step 3 only eliminated 33 companies.
*Match This is number of companies matching that criterion alone. Total Match is all companies matching all criterion up to that point.
In no way do I mean to rain on your parade, and I applaud the effort. But my own experience in screening says that applying only 4 simple steps (any 4 steps) can not and will not, result in a meaningful watchlist on a consistent basis.
I tried using screens to build my own fast growth list and I was not impressed with the results but it did supply a core number of stocks. Later I stared adding stocks I found at random during my investing research reading news and board posts, in a sense not so different from finding them in paid subscriptions.
Later the list changed again, morphing into a list of prospects. I keep a concentrated portfolio of less than a dozen stocks. The purpose of the list now is to have well researched candidates should I sell (or lose) any of my positions.
Okay, guys. Stock screening is off-topic on the board. This was interesting but we’ve had 9 posts on the thread now and it’s time to quit. What we are looking for is a discussion of individual stocks. If one of the stocks on the list interests you, research it and tell us about it.
Thanks for your cooperation,
Saul
