Stockles Risk Rating

The Stockles Risk Rating is created with the purpose of getting to know the business. I think that the best way to stay rational and calm in a stressful market is to know what you own and know what it’s good for. This Risk Rating is not absolute and a company can fit my portfolio even if a few questions are negative. I do this Risk Rating every time I buy a new company to make sure I know what this partnership truly means.

About the Company

  1. Geopolitical Risk: Is this company free of meaningful geopolitical risk?
  2. Market Cap: Is the market cap greater than $1 billion?
  3. Repeat Business: Does the business have high repeat customer usage?
  4. Brand 1: Does the company have brand strength with passionate advocates?
  5. Brand 2: Does the company’s business rely on recognizable branding truly valued by its buyer base?
  6. Safety: Is the safety score from SSD more than 75?
  7. Growth: Is the growth score from SSD more than 75?
  8. Yield: Is the yield score from SSD more than 75?
  9. Is the company recession proof?

Financials

10. Does the company have a good recent record of revenue growth? (Revenue CAGR)
11. Growth: Did the company increase its sales by 10% to 40% annually in the previous three years?
12. Profitability: Was the company profitable during the past year? 
13. Consistency: Has this company shown consistent profits each of the last five years? 
14. Cash Flow: Was the company cash-flow positive for the previous quarter, the last 12 months? Two of the last three years? 
15. Diversification: Is the company free of any customer or supplier that accounts for more than 10% of sales? 
16. Independence: Can the company execute its business plan without relying on external funding? 
17. Leverage: Is the company’s debt-to-equity ratio less than 1.0? 
18. Current Ratio: Is the current ratio more than 1.0? 
19. Net debt / EBIT: Is the net debt / EBIT lower than 2.0? 
20. Financial Transparency: Are the financials easy to understand? 
21. Return on Equity: Is the ROE/ROIC greater than 12% each year for the past five years?

Dividend

22. Yield: Does the company yield more than inflation?
23. Dividend CAGR: Is the CAGR more than 5%
24. Payout Ratio: Is the payout ratio less than 70%?
25. Dividend status: Is the company a king, aristocrat, contender…?

The Competition

26. Underdog: Is it free from stronger competitors?
27. Goliath: Is it free from disruptive upstarts?
28. Moat: Are there signs of strong competitive advantage?
29. Is the company likely to avoid disruption and see most of its key markets continue?
30. Is the company Amazon Proof?

The Stock

31. Market cap: Does the stock have a market cap of more than $750 million?
32. Beta: Is this stock’s beta less than 1.3 for the past 12 months?
33. P/E ratio: Does the stock have a positive price-to-earnings multiple that is less than 30?
34. Forward P/E ratio: Does the stock have a positive price-to-earnings multiple that is less than 30?
35. P/B ratio (financials): Does the stock have a price-to-book multiple around 1?
36. Forward P/B ratio: Does the stock have a price-to-book multiple around 1?
37. P/S ratio (growth): Does the stock have a price-to-sales multiple around 1 – 2 or less than 1?
38. Forward P/S ratio (growth): Does the stock have a price-to-sales multiple around 1 – 2 or less than 1?

Management

39. Insider Stake: Do founders and top executives have at least a 5% stake in the company?
40. Management: Is the management trustworthy? (Do as they say, ROE, ROIC, Capital Structure, Long-term Stock Price growth and Risk Controll)