Piotroski F-Score: A Quick Way to Find Great Value Stocks

According to the Joseph Piotroski’s 2002 paper, high book to market stocks filtered for high Piotroski f-score (buy), and low Piotroski f-scores (short sell) increases the annual returns on average by 7.5% over a market basket of high book to market stocks.

A high book to market portfolio outperforms a broad market index over time. According to this paper, filtering for Piotroski f-score adds incremental and non-significant amount of alpha to the portfolio returns.

We all want that, don’t we?

So, What is the Piotroski F-Score and How do we Use it?

The method proposed by Joseph Piotroski recommends to evaluate the company’s financial statements on 9 different attributes. Either the company passes or fails each of the 9 evaluations. Every pass is awarded 1 point. A fail is awarded no points. All the points are added up to give a final Piotroski f-score between 0 and 9.

Scores of 8 and 9 are considered strong value stocks. Scores of 2 or below are considered weak value stocks.

The 9 criteria is as follows, listed under 3 different groups:

Profitablity

1. Positive Net Income in the current year = 1 point. Company is profitable.