In earlier articles, we studied the distribution of Piotroski F-scores for companies trading on the Standard and Poor’s 500 index. This article will take the study one step further: how does the distribution of F-scores for S&P 500 companies compare to the distribution of F-scores for all companies trading on the New York Stock Exchange or Nasdaq?
Distribution of F-scores for S&P 500 companies
Developed by accounting professor Joseph Piotroski, the F-score measures a company’s financial strength based on information from the company’s balance sheet. Additionally, the Piotroski score, along with operating margin and predictability rank, determines the company’s profitability. As mentioned in his research paper, Piotroski prefers companies that have an F-score of at least 8. During the period from 1976 to 1996, an investment strategy that bought only the companies that had Piotroski scores of at least 8 outperformed the benchmark by an average of 13.4% annually.
As mentioned in an earlier article, the distribution of F-scores for S&P 500 companies is roughly symmetric with a mean of 5.59 and a standard deviation of 1.44. Further analysis shows that S&P 500 companies typically have above-average Piotroski F-scores.
While it appears to be symmetric, the distribution of F-scores is slightly left-skewed with skewness of -0.14. This suggests that the majority of S&P 500 companies have strong Piotroski F-scores. About 52.62% of S&P 500 companies have F-scores of at least 6, and over 78% have F-scores of at least 5. Furthermore, 9.68% of S&P 500 companies meet Piotroski’s investing criteria, implying abundant opportunities for investors.
Distribution of F-scores for NYSE and Nasdaq companies
Unlike the distribution of F-scores for S&P 500 companies, the distribution of F-scores for all NYSE and Nasdaq companies is not just symmetric but triangular shaped with a mean of 4.87 and a median of 5. Since these values are lower than the comparative values for S&P 500 companies, NYSE and Nasdaq companies generally have worse Piotroski F-scores than their S&P 500 counterparts.
About one-fifth of NYSE and Nasdaq companies have Piotroski F-scores of 3 or less. Such stocks usually make good sells, according to James Montier and his “Short Screener.” Additionally, 69 NYSE and Nasdaq companies have the lowest Piotroski F-score of 1. While 40 S&P 500 companies had a minimum F-score of 1, over 93% of S&P 500 companies currently have a Piotroski F-score of at least 4, the lowest score that is typical for a stable company. Only 16.49% NYSE and Nasdaq companies have strong Piotroski F-scores –companies that score at least 7 on Joseph Piotroski’s scale.
See also
Among the predefined screens listed under the All-in-one Guru Screener, several of them utilize the Piotroski F-score. An earlier article discussed the Piotroski Score Screener while the James Montier Short Screen is mentioned earlier. One screener, the Peter Lynch + Warren Buffett Screener, combines the investment strategies of Lynch and Warren Buffett (Trades, Portfolio). This screener has the following criteria:
- The company’s profitability rank is at least 7.
- The company has a Piotroski F-score of at least 5.
- The trailing 12 month P/E ratio is at most 14.
- Buffett currently owns the stock.
Currently, only four stocks meet all of the above criteria: Apple Inc. (AAPL, Financial), American Express Co. (AXP, Financial), International Machines Corp. (IBM, Financial) and US Bancorp (USB, Financial).
One of the recent features introduced within the All-in-One Guru Screener is Backtesting. Listed next to the “Active Filters” tab on the right, Backtesting allows Premium users to test their screeners with a three-year backtesting period. Premium Plus members get an additional seven years for a maximum backtesting period of 10 years. For more information on backtesting, read the new feature announcement and the article on “Hot Piotroski Travels.”
Disclosure: I currently do not own any stocks discussed in the article.
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