The G-Score, developed by Professor Parth Mohanram in 2005, is a fundamental analysis tool designed specifically for growth stocks, serving as a counterpart to Joseph Piotroski’s F-Score which was created for value stocks. The scoring system evaluates eight binary signals based on firm fundamentals, particularly focusing on aspects that are especially relevant for growth companies. These signals include stability and consistency of growth in R&D, capital expenditure, and advertising expenses, as well as measures of profitability such as return on assets and cash flow from operations.
The implementation of the G-Score involves assigning one point for each positive signal, resulting in a total score ranging from 0 to 8, with higher scores indicating better growth prospects. Mohanram’s research demonstrated that a trading strategy of going long on high G-Score stocks and short on low G-Score stocks within growth firms generated significant abnormal returns. The strategy particularly emphasizes the stability and sustainability of growth rather than just its magnitude, which helps distinguish between companies with sustainable competitive advantages versus those experiencing temporary growth spurts or operating in highly competitive markets.
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Here are Validea’s top 10 G Score stocks for January 2025.
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