The Pro Rating System

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Details About The Pro Rating System

The Pro Rating system involves three key elements that combine together to create one attractiveness rating - the Y-Rating. To see how those elements work, take some time to look through the key indicators.

  • Value Score
  • Fundamental Score
  • Valuation from Historical Multiples
  • The Y-Rating

If you want a little more about how Pro compares to the most common form of for-sale information available, keep reading.

Why Pro is Different From Analysts

Some new users are concerned that our attractiveness ratings sometimes disagree with those of analysts and their own perceptions. If you are skeptical, excellent. We are certain that we can prove ourselves to an open-minded skeptic.

First, consider the record of analysts. There is a great deal of research showing that analysts are overly optimistic about the stocks that they cover. Consider the history of equity analysts. For equities in S&P 500, analysts between 1996 and 2010 never rated more than 10% "Sell" or "Hold/Sell", despite some of the loftiest valuations in the market's history.

Analyst Ratings

That might be alright if analysts consistently picked winners in their "Buy" category. There is some evidence that top analysts can pick winners, but those analysts are rare. On the other hand, consider the evidence presented in articles in the Wall Street Journal and Bloomberg Online. In both cases, when analysts picks were grouped together, their top selections underperformed the market as a whole.

Further, there is strong evidence from scholarly research that analysts are over-optimistic about future prices and long term growth rates.

Our system, on the other hand, was built based on intensive study and rigorous testing. We searched for relationships between stock prices and company financials that predicted returns over long periods of time. We documented predictive relationships and can now direct you to companies that look similar to those that historically grew in value. While there is no way to guarantee that what worked in the past will work equally well in the future, we view it as the best possible starting point.

The short articles below will take you through the results of our most successful tests. Each of them was useful enough that we built an indicator based on our findings. By understanding each of the indicators, you will be ready to use YCharts Pro effectively.

The Key indicators: Value Score Fundamental Score Valuation from Historical Multiples The Y-Rating

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