Build your own strategy to analyze a stock

Before you start: what you want to check

A strategy is the list of what you look at before making up your mind about a company, with your thresholds. Before opening the app, jot down three or four questions your strategy should answer. For example: is the company profitable? Is its debt reasonable? Is the share price reasonable relative to its results? Each question will become one or two criteria.

If you would rather start from an existing base, the tutorial customize a preset strategy is quicker.

1. Create the strategy

On the Investment strategies page, click “Build my strategy” in the Build my own strategy block, then give your strategy a name that says what it is for: “European industrials”, “My income stocks”. The name then appears in the dashboard and on each sheet.

2. Add a first criterion

Each criterion has a label, optional help text, a unit, a weight and a type. Start with a simple criterion, for example operating margin:

• Label: “Operating margin”.
• Help: where you will read the figure, in your own words. “Income statement: operating profit / revenue.” Six months from now, you will be glad to find it.
• Unit: %.
• Type: minimum threshold, green from 15, orange from 8.

With this setting, a margin of 15% or more is green, a margin of 8 to 15% is orange, and a margin below 8% is red. A value equal to a threshold takes the better of the two colors.

3. Choose the right type for each criterion

• Minimum threshold: the higher, the better (margins, ROIC, growth).
• Maximum threshold: the lower, the better (net debt / EBITDA, P/E, payout ratio).
• Range: neither too low nor too high, like dividend yield, where a very high yield is often a warning sign.
• Yes or no: a condition to check, such as “positive earnings every year for 10 years”.
• Choice: a list of options, each one ranked green, orange or red.
• Text: a free answer, never scored, for a point to follow up or a catalyst.

4. Let the app do a calculation

A threshold or range criterion can be calculated from two inputs A and B: a ratio (A / B), a product (A × B), a sum (A + B) or a gap ((A − B) / A). An input can also be the fair value entered at the top of the sheet, or the share price, then typed on the criterion in the sheet.

This is handy for a ratio you cannot find ready-made. For the payout ratio, for example: a ratio, with A the dividend per share and B the earnings per share, in the % unit. You enter both figures from the annual report, and the app works out the ratio and the verdict.

5. Set the weights

Each criterion weighs from 1 to 5 in the score. A green criterion is worth 2 points, an orange one 1, a red one 0, multiplied by its weight. Keep a weight of 1 everywhere at first. Then raise it for the two or three criteria that really matter to you, for example debt if you want to steer clear of fragile companies at all costs.

6. How many criteria

A strategy can have up to 30 criteria. In practice, 6 to 12 are enough: beyond that, filling in a sheet takes a long time, and each criterion weighs less in the score. Cover several angles rather than piling up variants of the same indicator:

• profitability (ROIC, margins),
• financial strength (debt, liquidity),
• cash (FCF conversion),
• valuation (P/E, FCF yield),
• one or two qualitative criteria as yes or no, or as text.

What to know next

A strategy with an error, such as an orange threshold on the wrong side of the green threshold, is not saved until the error is fixed. The app flags it below the criterion.

Editing a strategy changes every sheet that uses it. To try a variant without touching the original, duplicate the strategy. Once your strategy is ready, move on to the tutorial fill in a sheet from an annual report.