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Quality Screen - Total Stock Return Drivers
This McKinsey’s study revealed that the primary driver of total stock return (TSR) comes from the following business drivers:
Business Drivers of TSR:
- Economic Profits Growth
- Revenue Growth
- Expansion of Margins
Well can agree that price multiples play an important role in TSR. Changes in perceived future value can also expand or contract valuation multiples, but these are hard to predict. The best we can do is compare current multiples against historical average multiples.
Based on the above, I created a screen based on the components of the Russell 3000.
The results are predictable.
The results can be found in this google sheets
https://docs.google.com/spreadsheets/d/1HbzbR4EuIV9VqtjxZAs_IGi0QKXcIh_dCdPt35E4opE/edit?usp=sharing
Criticisms of this screen:
- Using ROIC & Beta is an imperfect indication of Economic Profits Growth. I still have to figure out how to properly screen for EVA using YCharts.
- This screen isn't forward looking. Big problem with forward looking is that not all companies have forward looking estimates.
Google Docs
Quality Companies
TSR Screen
Symbol,Name,Sector,Industry,Market Cap,Return on Invested Capital,Gross Profit Margin,Gross Profit Margin (3y Median),Revenue (3 Year Growth),EV to EBITDA,EV to EBITDA (3y Median),Beta (1Y)
THO,Thor Industries Inc,Consumer Cyclical,Recreational Vehicles,$4,398,21%,17%,14%,14%,3.4,9.9,...
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