What is a stock screener?
A stock screener is any tool that enables the trimming down of the number of stocks, according to specified criteria, to screen out the stocks you are not interested in. There is a universe of stocks available to every investor. Screening helps you find the stocks that suit what you are looking for, out of the entire universe.
Stocks of listed companies have a ton of information about them. They include:
- Financial information: Information about where and how a company makes money, how it spends money it makes, how many assets and liabilities it has, how it manages its cash flow, etc. You can find this information in the company’s financial statements.
- Market data information: Information about the price of the company’s stocks and other related data. Exchanges report this data and also provided it to third-party vendors for redistribution.
Both financial and market data information have hundreds of data points for each stock and depending on what your objectives are some data points may interest you while some may be useless to you. When you have defined your investment objectives, you would need to find stocks that meet those objectives. This is where the data points of each stock become important. The data helps you identify stocks whose characteristics meet those objectives.
Why is a stock screener important?
The investment process starts with a financial plan. Here, you identify the investor’s objectives and define what asset classes and assets will meet those objectives. An investment objective might be as simple as “investing in financial services stocks only”. To achieve this goal, the investor needs to:
- Collect and store data about all the universe of companies
- Prepare the earlier collected data. By preparing, we mean ensuring that there are no errors in the data collected and that all the data is in a consistent format.
- Analyze and model the data. We do this to identify only stocks that belong to the financial services sector.
- Visualize or present the results of the data we analyzed, so you only see those companies that meet the requirements above
- Rinse and repeat: If the result satisfies us, we use the information. If we are not happy, we start the process somewhere along that loop, or all over again.
We carry out this process every time we need to find stocks that meet our requirements, and which we defined in the investment objective.
You can go through this process yourself every time you intend to find stocks with specific requirements, or you can use a stock screener. A stock screener does everything in the process described earlier, and in a relatively shorter time. What you would probably need an entire day to do, you can achieve in a few minutes with a screener.
How to use a stock screener
To find out how a screener works:
- Define the investment objective: To make this worth your while, let’s use a more complicated screener than what we considered earlier. Let us assume there is a technical investor who would like to speculate on the Nigerian stock market. His aim could be to speculate in Nigerian stocks that move actively and frequently enough to provide opportunities for 5% weekly returns. He would, therefore, be looking for liquid and volatile stocks.
- Launch the screener: Go to the screener at this link. It will bring you to the home page of the screener and display a page that looks like what you see in the following image.
3. Select columns: Columns are the specific characteristics that an investor would like to see, or not see, in the stocks he would like to invest in. Recall that this investor’s aim shows he needs to find liquid and active stocks. To find these stocks, we will look for the following characteristics (I have underlined, below, the data columns to search for):
- Average daily range
- Stock price
- Average daily volume
To show these columns, please click on the “columns” drop-down button in the screener as shown below.
4. Apply rules: The rules editor allows you to set the conditions you desire for the data columns you selected in the previous steps. Here, we want to see:
- The average daily range in the last 90 days is greater than or equal to 2%
- The price of the stock is between ₦1 and ₦50
- Average daily volume in the last 90 days is greater than or equal to 1 million shares
- Average daily volume in the last 30 days is greater than or equal to 1 million shares
Click on the green circle, “Rules”, and select columns with their respective rules. Repeat this process for every rule described and as shown in the image below:
Screener results
Voila: There you go. You have a list of Nigerian stocks whose average daily range is greater than or equal to 2% and whose average daily volumes over the last 30 and 90 days are greater than or equal to 1 million shares. The outcome of this “Active trader screen” produces a list of 6 stocks that active speculators can choose from when looking to speculate on the Nigerian stock market. We can see these companies in the table below.
Screening based on financial information
For those who would like to search for stocks based on financial data instead of market data, we will run a simple screen that you can follow. Let us create a screen that shows only companies that have grown their profit every year over the last five years.
To achieve this, we will follow the steps described for the active trader stock screen above. When we get to step 3, we will select the following columns:
- Earnings per share (EPS) in the just-concluded fiscal year
- EPS in the five years preceding the year just concluded (one column for each year).
Next, apply the financial rules to the editor. You can see the rules to use in the image below.
The results for this “Consistent earnings growth screen” give us a list of Nigerian companies that have grown their earnings, year-over-year, in the last five years. These companies are:
One last point
In this post, we have investigated the definition of a stock screener and explained why it is important. We have learned that there are now more efficient ways to identify stocks that “could” (not must) be candidates for your style of investing than manually doing so. We have also worked through screening for stocks that meet different requirements.
I need to emphasize here that the results of a screener do not obligate you to buy the stocks it presents. They are a starting point for further research. Before screeners, many investors, out of fear for hours of work and no guarantee of success, would avoid the financial planning process entirely. They would call up their friends or “experts” for investment tips. Now, with the aid of a screener, you can have more confidence in your ability to discover investments that meet the requirements that you desire.
Conclusion
Take a moment to experiment with the screener as shown in this guide. You will become more confident with time and could see some revelations that, hitherto, were inconspicuous. Never, again, make an investment just because someone else thinks it is an excellent investment. Invest because you have screened out the rotten apples from the universe and only have great investment opportunities in front of you.
