Among the value screeners, the Piotroski score screener produced strong portfolio returns during the backtesting period from 2006-2016. The test portfolio held two leasing companies for at least two years: AeroCentury Corp. (ACY, Financial) and J. W. Mays Inc. (MAYS, Financial). With strong Piotroski F-Scores, these two companies offer high value potential to investors.
Brief introduction to Piotroski, his financial metric and historical performance
Joseph Piotroski, associate accounting professor at the University of Chicago, developed a nine-criterion system to measure the financial strength of a company’s business. The investing system, known as the Piotroski F-Score, aims to increase the annual returns of an investing strategy that targets low price-to-book value companies.
GuruFocus implemented Piotroski’s investing strategy using the following filters from the All-in-One Guru Screener:
- The Piotroski F-Score is at least 7.
- The company’s price-to-book ratio is less than the 80th percentile of the industry.
Additionally, the Piotroski score screener limits the companies to those that have a market cap less than $5 billion, an average two-month trade volume less than 100 thousand shares, and no more than one analyst following the stock. All over-the-counter stocks are excluded. The screener lists 127 company stocks as of Sept. 17.
During the 20 year period from 1976-1996, Piotroski’s investing strategy resulted in an average excess return of 13.4%. Based on backtesting results for the 10 year period from 2006-2016, the Piotroski score investing strategy resulted in an overall return of 376.20% using semiannual rebalancing, significantly outperforming the Standard & Poor’s 500 index exchange-traded fund. The following table details the portfolio returns of the Piotroski score strategy with different rebalancing frequencies.
| Year | SP 500 ETF | 12-mo rebalance | 6-mo rebalance | 3-mo rebalance | No rebalance |
| 2006 | 13.74% | 25.56% | 19.05% | 26.64% | 25.56% |
| 2007 | 3.24% | -2.58% | 12.77% | 1.91% | 9.65% |
| 2008 | -38.28% | -35.85% | -33.54% | -39.28% | -34.38% |
| 2009 | 23.49% | 72.77% | 59.69% | 57.16% | 27.57% |
| 2010 | 12.84% | 52.43% | 30.91% | 49.26% | 22.87% |
| 2011 | -0.20% | -1.80% | 0.82% | 11.50% | 2.27% |
| 2012 | 13.47% | 21.36% | 20.98% | 15.87% | -10.34% |
| 2013 | 29.69% | 53.56% | 65.05% | 52.74% | 32.40% |
| 2014 | 11.29% | 3.13% | 11.16% | 8.61% | 2.83% |
| 2015 | -0.81% | -2.67% | -7.08% | -9.26% | -7.06% |
| 2016 YTD | 6.12% | 10.88% | 22.76% | 27.62% | 6.55% |
| Overall | 73.75% | 320.88% | 376.20% | 356.25% | 75.11% |
| Rank | 3 | 1 | 2 | 4 |
Leasing companies have strong Piotroski scores
The Piotroski score test portfolio bought J.W. Mays in January 2015. The New York based real estate company has a financial strength rank of 8, implying a strong business operation. The company has a Piotroski score of 8 and an Altman Z-Score of 4.51, the latter suggesting that J.W. Mays seldom faced bankruptcy risk. Both financial strength metrics generally increased during the past 10 years. Additionally, the company’s Beneish M-Score suggests that J.W. Mays did not manipulate its current earnings results.
As of Sept. 19, J.W. Mays has several good signs, including high F-Scores. The company’s stock price, price-to-book ratio and price-to-sales ratio are currently near two-year lows.
Likely due to historical low Altman Z-scores, AeroCentury has a relatively poor financial strength rank. While the company currently has a high F-Score, these scores are more volatile than J. W. Mays’s F-scores. This suggests that AeroCentury’s business operation is less stable. The company also has poor interest coverage and equity-to-asset ratios, implying a debt burden.
Conclusions and see also
After finishing up the backtesting, the Piotroski investing strategy produced the best returns. The backtesting results are summarized below:
| Value Screener | Maximum Portfolio Performance, as of Sept. 19 | Notes |
| Piotroski Score | 376.20% | Ranked by F-score DESC, semiannual rebalancing |
| Peter Lynch Growth, lower valuation (article) | 315.55% | Ranked by 10y Revenue Growth Rate ASC, yearly rebalancing |
| Dividend Growth | 243.04% | Ranked by financial strength DESC, yearly rebalancing |
| Profitable Predictable Margin Expanders (article) | 178.77% | Ranked by financial strength DESC, yearly rebalancing |
| The Stalwarts | 165.63% | Ranked by # of Profitability years in past 10 years DESC, yearly rebalancing |
| Ben Graham's Lost Formula | 115.68% | Ranked by trailing 12-month price-earnings, ASC. No rebalancing |
| Peter Lynch Fast Growers | 113.70% | Quarterly rebalancing |
During the next few weeks, we will discuss which industries have strong financials. For each of the financial metrics listed in the key statistics module, we will discuss the industries that have the best values. Premium members have access to all the value screeners, including up to three years of backtesting in the All-in-one Screener. The premium plus membership allows access to the Manual of Stocks for all U.S. companies, over 4000 institutional filings and up to 10 years of backtesting. Please sign up for free seven-day trial today.
Disclosure: The author has no position in any of the stocks mentioned in the article.
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