Common mistakes to avoid when using GPRV

Modified on Mon, 10 Aug, 2020 at 4:33 PM

A common mistake you can make when reading a GPRV chart  is to consider that a high aggregated score for any category entails high values for underlying financial indicators. This is true for the Growth and Profitability categories: the higher the score, the higher the growth/profitability, because the better for the investor. However, for the Risk and Value categories, the scoring is inverted: the higher the score, the lower the risk/value, because the investor is ideally interested in stocks that are undervalued and low risk.

You also need to be very careful with scores equal to zero. In most cases, a zero score does not mean that the company has the worst performance for that indicator within the reference universe. Generally, that indicator cannot be calculated and its absolute value is shown as N/A. It should therefore be ignored, rather than considered as a sign of underperformance.

Another common mistake consists in selecting a second company (or a list of peers) corresponding to an industry sector different from the one of the selected company. GPRV scores are indeed calculated using the sector of the selected company as reference universe, including in that universe companies that do not belong to the same sector would therefore be misguided.


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