The Portfolio Analyzer makes frequent reference to 4 of ERS’s proprietary risk ratings:
- Price Risk Indicator (PRI): A measure and rating of the statistical probability and magnitude of a stock’s future price changes.
- Equity Risk Indicator (ERI): A ratings of both the financial condition and valuation of a stock.
- Fiduciary Risk Rating (FRR): A statistical rating system that alerts fiduciaries when risks of loss in a company’s stock may be substantial, regardless of its market popularity.
- Valuation Metric 1 (V1): A metric which assesses a company’s current Price-to-Sales (P/S) ratio by comparing it to its historical 1-year and 5-year P/S ranges. This metric helps identify whether the company’s valuation is near historic highs, lows, or averages.
How to Interpret ERS’s Probability Guidance
PRI:
“A” or “A+”: Very low price ratios. Inexpensive or bargain-priced compared to both historical norms and standard valuation benchmarks.
“B”: Moderately low price ratios. Priced attractively but not at its lowest levels.
“C”: Average price ratios. Reasonably priced relative to its historical and objective valuation standards.
“D”: High price ratios. Expensively-priced compared to its historical norms and standard valuation metrics.
“E” or “F”: Very high price ratios. Significantly overpriced and potentially a poor investment.
ERI:
“A” or “A+”: Both financially strong and growing, while also priced attractively, making it a solid investment.
“B”: Relatively strong with some growth potential, making it a reasonable investment.
“C”: Moderate strength and stable fundamentals, but it is neither particularly inexpensive nor overpriced.
“D”: Weakening or showing signs of trouble, and it is becoming expensive relative to its value.
“E” or “F”: Weak or deteriorating, and likely overpriced, presenting significant investment risks.
FRR:
“A” or “A+”: Highly solvent and likely a good value, making it a strong candidate for fiduciary ownership.
“B”: Financially stable and reasonably priced, making it a moderately strong candidate for fiduciary ownership.
“C”: Average solvency and price risk, indicating a neutral level of suitability for fiduciaries.
“D”: Elevated price risk and lower financial stability, making it somewhat unsuitable for fiduciary ownership.
“E” or “F”: Potentially insolvent and overpriced, presenting significant risks and being highly unsuitable for fiduciaries.
V1:
“A” or “A+”: P/S is at or near the most favorable end of its historical range, indicating strong value potential and minimal risk.
“B”: P/S slightly above the most favorable range but still represents a relatively attractive valuation.
“C”: P/S in the middle of its historical range, signaling a neutral valuation with moderate risk and potential.
“D”: P/S above the favorable range, suggesting the stock is overvalued and carries increased risk.
“E” or “F”: P/S at or near the most unfavorable extreme of its historical range, indicating significant overvaluation and substantial risk.