The Quant Value Composite is a unique composite indicator is designed to offer a more refined view of a company's valuation, strategically excluding the Price to Book ratio.
Why Use a Composite Indicator?
The rationale behind using a composite indicator like the Quant Value Composite is based on the inconsistent performance of individual valuation ratios across different market cycles.
Research by O’Shaughnessy Asset Management showed that a composite valuation ratios consistently ranked within the top three valuation ratios over a 26-year period and outperformed the market in every assessed period. This composite investment approach proved superior in 87% of all rolling five-year periods!
The Impact of the Quant Value Composite
By combining valuation ratios deliberately omitting the Price to Book ratio lets you avoid value traps that may look inexpensive but tend to underperform (the cheapest price to book companies).
How is it calculated
The Quant Value Composite is a composite indicator that takes the entire screener universe and ranks it from best to worst based on five key ratios.
These ratios are:
- Price to Sales: The lower, the better,
- Price to Earnings (PE): The lower, the better,
- EBITDA Yield or EBITDA to EV: The higher, the better,
- FCF Yield (FCF to EV): The higher, the better,
- Shareholder Yield: The higher, the better.
Each company's ranking on these five ratios is added together to create a single composite value.
This composite value is then recalibrated on a scale from 1 to 100, with 1 representing the top 1% of the best-ranked companies in the universe and 100 representing the bottom 1% of the worst-ranked companies.
In essence, it condenses multiple valuation factors into a single, easy-to-understand score.
How to use the ratio
The Quant Value Composite is designed for ease of use.
It can be used as a primary factor through adjustable sliders in the screener. Additionally, you can include it as a column in the screener's output, allowing you to sort companies by Quant Value Composite.
It is also available in the historical screener so it can be used for back-testing.
Available as a screening ratio: Yes
Available as an output column ratio: Yes
Available in the Historical Screener (back tester): Yes
How to select the best ranked Quant Value Composite companies
To find companies the best Quant Value Composite companies set the slider from 0% to 10%
All ratios are calculated on a trailing 12 months (TTM) basis. This means the last twelve months (not the company’s financial year) is compared to the same period in the past.
We do this to make sure that the screener data includes the latest, most up to date, financial results of the company.