James Montier 'Unholy Trinity' Screen
This is a three point short selling screen based on the approach outlined by James Montier in 2008 to identify potential candidates in weak markets.
1. High Valuation (Price to Sales Ratio > 4) - Calling the Price to Sales ratio 'insane' as a valuation measure due to its lack of focus on profitability, Montier first screened for companies trading at a multiple of at least 4 times sales.
2. Weak Fundamentals (F Score < 4) - With the valuation side covered, he then qualified this list by screening for the financially weak companies having a Piotroski F Score of 3 or less.
3. Poor Capital Discipline (Asset Growth > 10%) - But unsatisfied with only focusing on high valuation and weak fundamentals, Montier also showed that company executives were often wasteful capital allocators; research showing that companies with low asset growth rates highly outperform companies with high asset growth rates by 13% annually. more »