Imagine a score ranging from 0 to 9, with 9 being the gold standard and 0 indicating the least favourable. This is the Piotroski score, a valuable metric used to assess a company’s financial health and its potential for value investing. Professor Joseph Piotroski devised this score by analysing various aspects of a company’s financial statements.
The Piotroski score is built upon three key pillars: profitability, financial health, and operational efficiency. Each pillar is further divided into specific criteria, and a point is awarded for each criterion met.
Let’s delve deeper into these pillars:
Now, let’s put theory into practice by analyzing three companies boasting a Piotroski score of 9: Vascon Engineers, Gabriel India, and EIH Associated Hotels. We’ll compare their key financial metrics to understand their potential for value investing.
S.No. | Name | CMP (Rs) | Mar Cap (Rs crore) |
P/E | Ind PE | 1Yr return % | Debt / Eq | ROE % | ROCE % | ROIC % | YoY Qtr Sales Growth % | YoY Qtr Profit Growth % | Sales Growth 5Yrs % | Profit Growth 5Yrs % | Piotski Scr |
1 | Vascon Engineers | 73.39 | 1594.79 | 15.78 | 27.72 | 141.6 | 0.2 | 11.3 | 11.34 | 13.86 | 10.33 | 13.66 | 13.59 | 127.45 | 9 |
2 | Gabriel India | 342.75 | 4923.38 | 29.66 | 30.6 | 121.32 | 0.01 | 16.15 | 21.95 | 17.69 | 14.46 | 47.53 | 10.14 | 7 | 9 |
3 | EIH Assoc.Hotels | 718.75 | 2190.04 | 31.13 | 45.8 | 84.91 | 0.01 | 17.8 | 23.26 | 24.06 | 14.5 | 25.56 | 5.04 | 10.97 | 9 |
Looking at the table, we observe several interesting points:
The Piotroski score of 9, coupled with the favourable financial metrics observed in the case studies, paints a compelling picture for potential value investors. These companies demonstrate the potential for future growth. However, it’s crucial to remember that past performance is not always indicative of future results, and a comprehensive investment analysis is essential before making any investment decisions.
By analysing companies with a Piotroski score of 9, we can potentially uncover hidden gems. Vascon Engineers, Gabriel India, and EIH Associated Hotels showcase promising financial characteristics, including strong profitability, healthy financial positions, and the potential for undervaluation. While this analysis provides valuable insights, it’s crucial to conduct further research before making any investment decisions. Remember, the Piotroski score is just one tool in an investor’s toolbox, and a comprehensive investment strategy should consider various factors.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. The information is based on various secondary sources on the internet and is subject to change. Please consult with a financial expert before making investment decisions.
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