Stock screening

Stock screening is the use of already available numbers to produce a list of investments, usually shares, that are worth considering buying. Screening is a relatively crude tool compared to analysis, but it makes it practical to sort through very large numbers of securities and create a reasonably short list of candidates for fundamental analysis: it avoids the impossibility of carrying out fundamental analysis of thousands of companies.

A screen would use minimum and maximum values for various numbers. What criteria are used will depend on the investment strategy is use. For example, a simple screen for value investing would be a maximum historical PE ratio and a minimum dividend yield. A simple screen for growth investor would be minimum EPS growth and a maximum PEG ratio.

Stock screening is usually automated. Financial institutions are likely to use screen services from their data providers (such as Bloomberg) or to have customised systems that use internal databases. Private investors are most likely to use stock screening services on websites.

The criteria used in stock screening include valuation ratios (as in the simple examples above) measures of financial strength and financial and management performance, as well as market data such as historical prices and volumes.

Screening is, by definition, a preliminary step to produce a short-list, rather than a portfolio. However, mechanical investing strategies often use the same criteria as a screen, and pick a number that fit the criteria best (e.g. ten shares with the highest yield).