Determining the right metrics to identify value investment stocks
Year: 2025
Type: article
Abstract: This research aims to determine the most effective metrics for identifying value stocks by evaluating traditional value investing measures and proposing modifications to enhance their relevance in today’s market. The study focuses on three well-established methods: the Piotroski Score, the Graham Number, and the Coffee Can Approach, all of which have historically guided investors but are now perceived as somewhat outdated. To address this, I will modify these methods by adapting them to modern market conditions by adding or by removing few components like addition of Sharpe ratio. The research will conduct a comparative analysis by selecting stocks using both the original and modified versions of these metrics, then Back Testing their performance over the past 4 years. Additionally, standard value metrics, such as the Price-to-Earnings (P/E) ratio and Price-to-Book (P/B) ratio and Price-to-earning-to-growth (PEG) ratio will be used as benchmarks to evaluate the performance of the modified models. Through Back testing, the study will assess and analyse which approach, whether original or modified, delivers higher returns. Sensitivity analysis will be performed to evaluate the robustness of the modifications made to the Piotroski Score, Graham Number, and Coffee Can Approach. Furthermore, the ADF stationarity test will be applied to examine the statistical significance of the modified metrics. The study also considered review of literature regarding value investment in context of financial statement with various tools and instrument relevant for investment and other strategic approaches to bridge theory and practice. Ultimately, the goal is to determine whether these modifications enhance the effectiveness of identifying high-performing value stocks.
Authors: T. Sam Jebasingh -, Dr. Samreen Ayesha -
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: hybrid
OpenAlex ID: W4408949132