NEW YORK (
) -- As part of our drive to increase the value of our content to our subscribers, we've decided to expose far more granular-level details about our proprietary quantitative analysis service -TheStreet Ratings - as a new feature. For those of you that aren't familiar with TheStreet Ratings, here's a quick primer.
TheStreet Ratings provides quantitative analysis, which is an analytical method that uses computer models to aid decision-making. The model crunches the latest financial releases, then ranks all stocks along an easy-to-understand scale that identifies good candidates for investment. Armed with this tool, you can proceed to your own in-depth fundamental research before making buy/sell decisions.
Here's how the system works: Each night, our computers absorb all available financial data, plus information about valuation and stock price movements. It uses these data as inputs to run interdependent calculations, which are in-turn weighted and combined to arrive at a single-point "score," or rating for each stock. This type of process is known as an algorithm - a consistent set of rules for how to solve a recurring problem, in this case picking stocks.
Depending on the score, letter grades, just like those issued in school, are assigned. A recommendation of "Buy" is given based on letter grades of A+ through B-. "Hold" equates to grades of C+ to C-. And, "Sell" is recommended at grades from D+ down to F.
Numerous data points are examined, including both growth and profitability measures. Items related to the overall risk of the company's operations and its stock price also feed into the calculation. For these latter inputs, capital structure (debt and equity), durability of profit results, and stock price volatility all influence the final assessment.
Within our published reports, and now through the new Ratings Research Center, we show six individual assessment indexes that form the basis for the overall Rating:
1. The Growth index measures the evolution of key items from a company's financial statements, and compares them to the company's own history and to peers.
2. The Total Return index measures a stock's relative performance in the stock market.
3. The Efficiency index measures items that can reveal how well the company is being managed, and measures both the evolution and absolute level of items such as return on invested capital.
4. The Volatility index measures stock price volatility.
5. The Solvency index gauges the strength of a company's financial position.
6. And the Income index scores companies on their relative dividend yields.
The Ratings model has a solid track record of producing positive "alpha," or benchmark-beating performance, over various time periods, and has done so on a risk-adjusted basis. But you should know that TheStreet Ratings' system is not foolproof.
The computer does not know anything we don't tell it. So, it can occasionally see a false signal and misinterpret it as valid.
The key to using the ideas generated by the model is to have human brains vet them.
That's what we aim to help subscribers do: use this sophisticated, proprietary stock-picking technology as a starting place to narrow down the choices to those worthy of further research. This leads to making better investment decisions.
Finally, our ratings will sometimes conflict with the opinions of our writers here on
( TSCM), and on our Real Money site. That's the nature of the beast. In an ideal world, Ratings analysis, technical analysis and fundamental analysis would all lead you to the same conclusion about a stock. That won't always happen. Only you can to decide whether your own fundamental analysis overrides any concerns expressed by our model, or by any of its technical analysis considerations.
-- Reported by Don Lucek in Boston, MA.