How To Use A Technical Financial Screener For Stocks

Before the existence of financial data tool providers, and before retail traders were able to trade online; for a transaction in the financial markets to occur, there used to be a process that was dependent on human interaction. 

Dealers/Brokers used to contact potential investors in order to offer them different investment opportunities. These opportunities were filtered by analysts by skimming through multiple industries and using multiple analysis methods. 

Market participants in Wall Street would do this by filtering stocks and other financial instruments as they have the required knowledge and experience in building profitable portfolios.

Throughout the years, financial expansion occurred globally, whereby private companies went public for the purpose of raising capital at fast rates. Between (Figure 1) the year 2000 and 2022, the markets witnessed approximately 5,881 IPOs.

Consequently, technology has also vastly developed allowing everyone to be active market participants, whereby, they can make investment decisions by themselves.

The ability to acquire information about stocks for example can be processed by utilizing referenced financial websites, and by complex tools and indicators to show us the best opportunity in the market.

Currently, we are able to analyze financial instruments more efficiently, by accessing financial screeners which have a goliath of data on board from various data providers, which can be used to conduct more effective trades. 

Screeners allow investors to filter through stocks that meet their criteria by searching and sorting through their data. 

The stock screener for investors can be compared to global search engines similar to what Google is to the internet.

We have different financial methods available in order to analyze any asset class, all these methods direct us back to fundamental and technical analysis.

Previously, analysts used to depend on different confirmations in order to execute transactions, while going through each instrument at a time manually. 

With the use of the stock screener, unwanted data can be eliminated and efficient filtering will provide investors/traders with exactly what they're looking for in a much faster manner.

The stock screener provides hundreds and thousands of fundamental and technical variables that can be used in building portfolios.

The first steps in using the stock screen start with the descriptive variables, such as market capital, average trade volume, industry, sector, country, etc. However, let's discuss the most used variables:

Market Capital: Often referred to as a market cap, is the total dollar market value of a company's outstanding shares of stock. Through this value, we can understand if the enterprise is small, medium, or Large.
A small market cap ranges between $300mln to $2bl, a medium market cap ranges between $2bln to $10 bln, a large market cap ranges between $10 bln to $200bln and a company with mega market cap is anything above $200bln.

Dividend Yield: A financial ratio that is represented by a percentage that expresses how much a company pays out in dividends each year compared to its stock price, for the shareholders.
A good average dividend yield for a company is between 2% and 6% according to Business Insider.

Average Volume: The average volume metric represents the total volume for a specified period of time divided by the number of bars within that period which shows the average number of shares traded within a day on a certain stock.

Industry: this refers to a specific group of companies that operate within a similar business realm.
After this step, we move to the fundamental screening, whereby, the decision would be dependent on the financial aspects of the company:

Some of the most used indicators in the fundamental screener are as follows:

Return on Equity: This financial ratio measures how good the company is at generating returns on their investment from their shareholder’s equity. 
Generally, a good return on equity is anywhere between 15-20%.

EPS: It stands for earnings per share, indicating the profitability of a company.
A good benchmark for EPS growth rates is at least 25%, suggesting a company has a lot of demand for its products and services.

Debt/Equity: This shows the main source of the corporation’s financing plan, if it is mainly derived from deb or from equity.
A good general consensus result for the debt-to-equity ratio is 1-1.5, however, if a company has anything over 2.0 it has more debt that it can’t cover compared to its equity.

Price/Earnings: the price/earnings ratio measures the company’s value as a whole by measuring its current share price relative to its per-share earnings.
At the moment according to the market average, a good P/E ratio ranges between 20-25; a higher PE above that range could be considered bad and a lower PE ratio can be considered better.

Quick and Current Ratios: this liquidity ratio helps investors and analysts understand how quickly a company is able to meet its short-term financial obligations.
A company with a quick and current ratio between 1.5-3 is preferred as it indicates a good and strong financial performance, however the lower the ratio, the higher chance it means a company will struggle to pay its liabilities and the higher chance it may go bankrupt.

After passing through all these steps, let’s take a look at a real example with real variables changed:

Let's take an example using the above-mentioned benchmarks on a screener (Figure 3&4):

The above-mentioned stocks were derived using the universal benchmarks which were set previously, however this doesn’t mean that an investor or trader should solely depend on those benchmarks alone.

The content published above has been prepared by CFI for informational purposes only and should not be considered as investment advice.  Any view expressed does not constitute a personal recommendation or solicitation to buy or sell.  The information provided does not have regard to the specific investment objectives, financial situation, and needs of any specific person who may receive it, and is not held out as independent investment research and may have been acted upon by persons connected with CFI.  Market data is derived from independent sources believed to be reliable, however, CFI makes no guarantee of its accuracy or completeness, and accepts no responsibility for any consequence of its use by recipients.