Stock Screeners and How to Pick the Right One
Stock screening is the practice of finding companies that satisfy particular financial criteria. A stock screener has three parts: an index of companies, a set of predefined variables and a screening engine that identifies the companies that are in line with those variables and reports matches.
Using a screener is not at all difficult. First you answer a number of questions like:
> Are you for small-cap or large-cap stocks?
> Are you aiming for stock prices at all-time highs, or companies whose stock prices have decreased?
> What price-to-earning (P/E) ratio range is acceptable to you?
The good screeners allow you to search based on nearly any criteria you would like. Once you have input your answers, you receive a list of stocks meeting your requirements. When you focus on the scientific factors that impact a stock’s price, stock screeners aid users in conducting quantitative analysis. Hence, screening mainly deals with concrete variables like profit margins, market capitalization, volatility and revenue, and also P/E, debt-to-equity and other performance ratios. Obviously, a screener can’t be used to search for a company that, say, “has the best products.”
Basic Screeners or Custom Screeners?
Basic screeners have a programmed set of variables and you simply set the values as your criteria. One variable on the ABC basic screener, for example, selects stocks based on market cap, enabling you to find companies that, say, is short of or well over $200 million in market capitalization. While some good screeners are available for free, if you’d like the newest and best technology, you should go for a custom screening subscription.
The most challenging part of using screens is setting the criteria for your search. There are tons of variables making different combination possibilities almost endless. Screeners are very adaptable, but if you’re not sure what you’re searching for or why, they can only give you limited benefits. To assist investors, some sites have predetermined stock screens, where variables are already put in.
What to Look Outfor When Using Stock Screeners
Even as they are highly useful tools, again, free stock screeners don’t offer much. Keep the following in mind:
1. Majority stock screeners only deal with measurable factors.
For your part, you need to factor in qualitative concerns, including labor problems, customer satisfaction, pending lawsuits, and other things similar.
2. Screeners have databases updating at different schedules.
Make it a point to check the freshness of the data – if they are old, your search could be of no value.
3. Pay attention to industry-specific blind spots.
If you are trying to find low P/E valuations, for example, don’t think there will be many tech firms coming up.
Stock screeners are no magic pills for stock selection, but a good one can help put you in the right direction. And as good screeners require resources to construct, you should never hesitate to invest in a well-crafted product.