OPM Sole Criteria for Stock Selection - Screener.in

1

I was working on below filter criteria in Screener.in ( OPM - Sole Criteria - Screener )
**OPM last year > OPM preceding year AND
OPM preceding year > OPM 5Year **

Given below are the results:

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image823Ă—648 61.9 KB

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image829Ă—657 63.3 KB

Can an Improving OPM be treated as Sole Criteria for stock selection? Average Stock returns are very much impressive for basket of stocks selected on above criteria.

I have tried different filter criteria but they return returns below returns delivered by above filter criteria.

Other filter criteria that I have considered

ROCE & ROE based:

Return on capital employed > Average return on capital employed 3Years AND
Average return on capital employed 3Years > Average return on capital employed 5Years AND
Return on equity > Average return on equity 3Years AND
Average return on equity 3Years > Average return on equity 5Years

Operating Cash flow based:

( Operating cash flow 3years / 3 ) > ( Operating cash flow 5years / 5 ) AND
( Operating cash flow 5years / 5 ) > ( Operating cash flow 7years / 7 ) AND
( Operating cash flow 7years / 7 ) > ( Operating cash flow 10years / 10 )

EPS based:

EPS last year > EPS preceding year AND
( EPS last year / EPS preceding year ) > EPS growth 3Years

3 Likes
2

Projection of all future cash flow to decide price based on Warren buffets method is the more proven one.

3

is there a screen for it?

4

For a cyclical industry, this formula will select the company when it has improved it’s margin and is at the best level at present. Naturally the company’s stock price will also be at the peak. So investing here means investing at the peak margins at peak price. Any margin decline will lead to massive derating in the future.
It can work in companies where there is some fundamental change in the business, like premiumization of product, and the margins will sustain in the future.

1 Like
5

Here is the screen OPM - Sole Criteria - Screener

2 Likes
6

Agreed to the point “Any margin decline will lead to massive derating in the future.” This screen looks into the past to understand impact of OPM.
What if I change the filter criteria from

**OPM last year > OPM preceding year AND
OPM preceding year > OPM 5Year **

To

**OPM last year > OPM preceding year AND
OPM preceding year < OPM 5Year **

This changes the criteria and we are not necessarily at peak of margin. It will provide a good starting point to understand the business.
Screener idea - OPM.xlsx (364.9 KB)

7

Earlier criteria is also good for screening. We only have to find the reason for improving margins and it’s sustainability going forward.

1 Like
8

adding mcap debt/eq
opm amends
OPM last year > OPM preceding year AND
OPM preceding year > OPM 5Year AND
Market Capitalization >200 AND
Market Capitalization <500 AND
Debt to equity <0.5