IdealRatings screening criteria

1. IdealRatings Screening Criteria

Introduction

IdealRatings is a financial data and analytics provider specializing in stock screening. It offers a powerful platform for investors to identify potential investment opportunities based on a wide variety of fundamental, technical, and quantitative criteria. The core of IdealRatings lies in its sophisticated screening functionality, allowing users to filter and rank securities according to personalized strategies. This article will delve into the intricacies of IdealRatings screening criteria, providing a comprehensive guide for beginners to effectively utilize this tool. Understanding these criteria is crucial for developing robust and profitable investment strategies.

Understanding Screening Criteria: A Foundation

At its heart, stock screening is the process of filtering a universe of stocks based on pre-defined parameters. These parameters, or *criteria*, are the building blocks of any successful screening strategy. IdealRatings provides an extensive collection of these criteria, categorized for ease of use. The goal isn't simply to apply as many criteria as possible, but to select those that align with your specific investment philosophy and risk tolerance. A poorly designed screen can yield irrelevant results or, worse, miss valuable opportunities. Consider your investment horizon – are you a day trader looking for quick profits, a swing trader aiming for short-term gains, or a long-term investor focused on value? Your timeframe will significantly influence the criteria you prioritize.

Categories of IdealRatings Screening Criteria

IdealRatings organizes its screening criteria into several key categories:

• **Fundamental Criteria:** This is arguably the most important category for long-term investors. It focuses on the underlying financial health of a company.
• **Technical Criteria:** These criteria are based on price and volume data, aiming to identify patterns and trends in a stock’s trading activity. Useful for technical analysis.
• **Quantitative Criteria:** This category combines elements of both fundamental and technical analysis, using mathematical formulas and ratios to assess a stock’s attractiveness.
• **Growth Criteria:** Focuses on a company’s potential for future expansion and revenue increases.
• **Value Criteria:** Identifies stocks that may be undervalued by the market. Often used in value investing.
• **Income Criteria:** Targets stocks that pay regular dividends.
• **ESG Criteria:** (Environmental, Social, and Governance) Allows filtering based on a company's sustainability and ethical practices.
• **Custom Criteria:** IdealRatings allows users to create their own criteria using formulas and calculations, providing unparalleled flexibility.

Detailed Examination of Key Criteria within Each Category

Let's explore some of the most commonly used and impactful criteria within each category:

Fundamental Criteria:

• **Price-to-Earnings Ratio (P/E):** A classic valuation metric comparing a company’s stock price to its earnings per share. Low P/E ratios *can* indicate undervaluation, but must be considered in context. [1]
• **Price-to-Book Ratio (P/B):** Compares a company’s market capitalization to its book value (assets minus liabilities). A low P/B ratio may suggest a stock is undervalued relative to its net worth. [2]
• **Debt-to-Equity Ratio (D/E):** Indicates the proportion of debt a company uses to finance its assets relative to the value of shareholders’ equity. High D/E ratios can signal financial risk. [3]
• **Return on Equity (ROE):** Measures a company’s profitability relative to shareholders’ equity. Higher ROE generally indicates better performance. [4]
• **Earnings Per Share (EPS):** The portion of a company’s profit allocated to each outstanding share of common stock. Growing EPS is a positive sign. [5]
• **Revenue Growth:** The percentage increase in a company’s revenue over a specific period. Indicates the company’s ability to expand its sales. [6]

Technical Criteria:

• **Moving Averages (MA):** Calculate the average price of a stock over a specified period. Used to identify trends and potential support/resistance levels. Common periods include 50-day, 100-day, and 200-day MAs. [7]
• **Relative Strength Index (RSI):** An oscillator that measures the magnitude of recent price changes to evaluate overbought or oversold conditions. Values above 70 are typically considered overbought, while values below 30 are considered oversold. [8]
• **Moving Average Convergence Divergence (MACD):** A trend-following momentum indicator that shows the relationship between two moving averages of prices. [9]
• **Volume:** The number of shares traded in a given period. High volume can confirm a trend or signal a potential breakout. [10]
• **Bollinger Bands:** Volatility bands plotted above and below a moving average. Used to identify potential price breakouts and reversals. [11]
• **Average True Range (ATR):** A volatility indicator that measures the average range between high and low prices over a specified period. [12]

Quantitative Criteria:

• **PEG Ratio:** The P/E ratio divided by the earnings growth rate. A PEG ratio of 1 is often considered fairly valued. [13]
• **Price Momentum:** Measures the rate of change in a stock’s price over a specific period. Indicates the strength of a trend.
• **Beta:** A measure of a stock’s volatility relative to the overall market. Higher beta indicates greater volatility. [14]
• **Alpha:** Measures a stock’s performance relative to its expected return, based on its beta. Positive alpha indicates outperformance.

Growth, Value, and Income Criteria: These largely utilize the fundamental criteria listed above, but focus on specific ranges. For example, a growth screen might prioritize stocks with high revenue growth and projected earnings growth, while a value screen might focus on low P/E and P/B ratios. Income screens will prioritize dividend yield and payout ratio.

ESG Criteria: IdealRatings allows filtering by a company’s ESG scores, enabling investors to align their portfolios with their ethical and sustainability values. This is becoming increasingly important for socially responsible investing. [15]

Combining Criteria: Building Effective Screens

The real power of IdealRatings lies in combining multiple criteria. Here's how to approach this:

1. **Define Your Investment Strategy:** Before you start selecting criteria, clearly define your goals. Are you looking for growth stocks, value stocks, dividend stocks, etc.? 2. **Start with Key Criteria:** Identify the 2-3 most important criteria for your strategy. For example, if you’re looking for value stocks, you might start with P/E ratio, P/B ratio, and debt-to-equity ratio. 3. **Add Secondary Criteria:** Add criteria to refine your screen and reduce the number of false positives. For example, you might add a revenue growth criterion to ensure the company is still growing, even if it's undervalued. 4. **Use Ranges and Thresholds:** Don’t just select “P/E < 15”. Experiment with different ranges to find the optimal settings for your strategy. 5. **Backtesting:** IdealRatings (and other platforms) often allow you to backtest your screen against historical data to see how it would have performed in the past. This is crucial for validating your strategy. [16] 6. **Refine and Iterate:** Stock screening is an iterative process. Continuously refine your criteria based on your results and market conditions.

Advanced Screening Techniques

• **Using Operators:** IdealRatings allows you to use various operators (>, <, =, >=, <=, !=) to define your criteria.
• **Combining Criteria with AND/OR:** Use “AND” to require all criteria to be met, and “OR” to require at least one criterion to be met.
• **Custom Formulas:** Create your own criteria using mathematical formulas and calculations. This requires a good understanding of financial analysis, but provides maximum flexibility.
• **Industry Filters:** Narrow your search to specific industries or sectors. This can be useful if you have expertise in a particular area.
• **Geographic Filters:** Focus on stocks listed on specific exchanges or in specific countries.
• **Alerts:** Set up alerts to be notified when stocks meet your screening criteria. This allows you to quickly capitalize on new opportunities.

Common Pitfalls to Avoid

• **Over-Screening:** Applying too many criteria can significantly reduce the number of stocks that meet your requirements, potentially missing out on valuable opportunities.
• **Ignoring Context:** Don’t rely solely on numerical values. Consider the industry, economic conditions, and company-specific factors.
• **Neglecting Qualitative Factors:** Screening is a quantitative process, but it’s important to supplement it with qualitative research. Read company reports, news articles, and analyst opinions.
• **Blindly Following Screens:** A screen is just a starting point. Always do your own due diligence before making any investment decisions.
• **Not Backtesting:** Failing to backtest your screen can lead to unexpected results. Ensure your strategy has a proven track record before deploying it with real money.

Resources for Further Learning

• Technical Indicators - A comprehensive overview of common technical indicators.
• Fundamental Analysis - Understanding the basics of fundamental analysis.
• Risk Management - Strategies for managing investment risk.
• Trading Psychology - The importance of emotional control in trading.
• Market Trends - Identifying and capitalizing on market trends.
• [17] - A guide to stock screeners.
• [18] - Stock screening explained by Corporate Finance Institute.
• [19] - A beginner’s guide to stock screening from The Street.
• [20] - Fidelity's guide to stock screeners.
• [21] - NerdWallet's review of stock screeners.
• [22] - Stockopedia's guide to stock screening basics.
• [23] - TradingView's stock screener.
• [24] - Finviz's stock screener.
• [25] - Zacks' stock screener.
• [26] - Yahoo Finance's stock screener.
• [27] - Morningstar's stock screener.
• [28] - Reuters' stock screener.
• [29] - Bloomberg's stock screener.
• [30] - MarketWatch's stock screener.
• [31] - Seeking Alpha's stock screener.
• [32] - Simply Wall St's stock screener.
• [33] - Trading 212's guide to stock screening.
• [34] - The Balance's guide to stock screeners.
• [35] - The Motley Fool's stock screener.

Stock Screening Fundamental Analysis Technical Analysis Investment Strategies Value Investing Growth Investing Dividend Investing Risk Tolerance Market Capitalization Financial Ratios

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