Down But Rebounding Screening Strategy

(Updated: 9 September 2019)

There are a few share reviews based on this strategy, so I feel I should elaborate more on the Down but Rebounding strategy. Thus, today I am going to present this strategy in greater detail.

Stock screener

I use Rakuten Trade stock screener for the Down but Rebounding strategy to get a list of stocks that meet the criteria.

Criteria of Down but Rebounding Screening Strategy

There are only four criteria. These are:

1. Price Down Rate (%) in 1 year with a maximum of -30

This is what I mean by down – a drop in share price of more than 30% compared to last year. This will let me find some out-of-favour companies.

2. PER (Multiples) with a minimum of 0

The price-to-earnings ratio should be more than 0, so that I know the companies are still making money. The last thing that I want to do is investing in a loss-making company.

3. Revenue Growth Rate (%) vs last year with a minimum of 10

If the share price is down by at least 30%, there must be a reason for the drop and it is mostly due to diminishing sales or profits. So, I would prefer companies that experience revenue growth which might translate into rising profits.

4. Pretax Profit Growth Rate (%) vs last year with a minimum of 10.

Actually, I would prefer after-tax profit growth rate but it is unavailable with Rakuten Trade stock screener. So, this is the alternative. I believe this criterion is self-explanatory.

Next steps

The screener will give me a list of companies that fulfil the criteria above. So, what do I do with this list? Do I investigate all the stocks? No, I would not do so. With the list on hand, I will screen through the stocks again.

The first thing that I will check is the stock info on Rakuten Trade. Click on the stock code, then go to CORPORATE INFORMATION. In the Financial Summary row of the first table, I will check if the company is making a profit or loss in the current financial year. If it is having losses, I will eliminate the stock.

Next, I will go to i3investor (Link) to check the past profitability of the company. Search for the stock and then check its quarterly results (Research → Financials). I require the company to have profits for the past two years at a minimum. Now, I am left with a few potential stocks.

However, the job is not done yet. After that, I will download their annual reports for the recent five years and study them. I will use my criteria to judge them and try to come up with an intrinsic or fair value for them. I will consider buying a stock when it is below or nearing this value.

Conclusion

As I have just started to employ this Down but Rebounding screening strategy for a few months, I am not really sure of its performance yet. So far, I have a few stocks in my monitoring list but I am not taking any action yet. Hopefully this strategy will be fruitful. I will come up with a performance review when I have enough data.

Referral link

Below is the referral link to Rakuten Trade. As I am involved in Rakuten Trade Educator Program, by clicking on this link, I may gain referral rewards from your registration with the platform once certain condition is met. (2022: I am not longer involved in the Educator Program).
If you think I have done a good service in explaining the topic, please click on the link below if you are interested to register. Otherwise, you can always search Rakuten Trade Malaysia with Google and register yourself.

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