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Exploring The Value Line Page

This handout has been taken from the Value Line homepage and modified.

 

1. Value Link Ranks

Timeliness
Timeliness is the measure of the expected price performance of a stock for the coming 6 to 12 months relative to Value Lines 1,700 stock universe. Stocks ranked 1 (Highest) and 2 (Above Average) are likely to perform best relative to the 1,700 followed stocks. Stocks ranked 3 are likely to be average performers. Stocks ranked 4 (Below Average) and 5 (Lowest) are likely to underperform stocks ranked 1 through 3.

 

At any time, there are 100 stocks ranked 1; 300 ranked 2; about 900 ranked 3; 300 ranked 4; and 100 ranked 5. Twice a year, in January and July, the results of the performance of the Timeliness ranks are published in Selection & Opinion.

 

The most important factor in determining the Timeliness rank is earnings growth. Companies whose earnings growth over the past 10 years has been greater than their stock price appreciation tend to have high scores. In addition, the ranks take into account a stock's recent price performance relative to all stocks in the Value Line universe. A company's recent quarterly earnings performance and any recent earnings surprises caused because a company reported results that were significantly better or worse than expected are also factors. They are combined to determine the Timeliness rank.

 

Stocks ranked 1 for Timeliness are often more volatile than the overall market and tend to have smaller capitalizations (the total value of company outstanding shares, calculated by multiplying the number of shares outstanding by the stock price per share). Conservative investors may want to select stocks that also have high Safety ranks because they are more stable issues.

 

Industry
Industry ranks show the Timeliness of each industry and indicate how Value Line believes the prices of stocks within 90 or more industries will perform relative to each other. These ranks are updated weekly and published on the front cover and inside the Summary & Index. They also appear at the top of each Industry Report in Ratings & Reports. Industry rank is calculated by averaging the Timeliness ranks of each of the stocks assigned a Timeliness rank in a particular industry.

 

Safety
Safety rank is a measure of the total risk of a stock compared to others in Value Line stock universe. As with Timeliness, Value Line ranks each stock from 1 (Highest) to 5 (Lowest). However, unlike Timeliness, the number of stocks in each category from 1 to 5 may vary. Safety rank is derived from two equally weighted measurements found in the lower right hand corner of each page: Company Financial Strength and Stock Price Stability. Financial Strength is a measure of the company's financial condition and is reported on a scale of A++ (highest) to C (lowest). The largest companies with the strongest balance sheets get the highest scores. Price Stability is based on a ranking of the standard deviation (a measure of volatility) of weekly percent changes in the price of a company stock over the last five years, and is reported on a scale of 100 (highest) to 5 (lowest) in increments of 5. Generally speaking, stocks with Safety ranks of 1 and 2 are most suitable for conservative investors. A stock's Price Growth Persistence and a company's Earnings predictability are also included in the box above, but do not factor into the Safety rank. However, they are useful statistics.

 

 

 

 

Technical
Technical rank is primarily a predictor of a stock's short term (3 to 6 months) relative price change. It is based on a proprietary model which examines ten relative price trends for a particular stock over different periods in the past year. It also takes into account the price volatility of each stock. The Technical ranks range from 1 (Highest) to 5 (Lowest). At any one time, about 100 stocks are ranked 1; 300 ranked 2; 900 ranked 3; 300 ranked 4; and 100 ranked 5.

 

Beta
Beta is a measure of volatility and is calculated by Value Line.

 

2. Analyst's Commentary

This is in the lower half of the page. In the commentary, the analyst discusses their future expectations. There are times the raw numbers don't tell the full story. The analyst uses the commentary to explain why the forecast is what it is. The commentary is useful when a change in trend is occurring or about to occur. As an example, a stock may have a poor Timeliness rank but the analyst thinks earnings could turn around in the future. In this case, the analyst may use the commentary to explain why they think conditions are likely to get better, thus giving the subscriber insight into what is happening and why.

 

3. Financial Estimates

The estimates of sales, earnings, net profit margins, income tax rates, and so forth are all derived from spread sheets maintained on every company and printed in bold italics. The numbers are based on an analyst's latest thinking about where a company may be in the future. Our analysts regularly review their projections with the company's management. Afterwards, they make whatever adjustments they believe are warranted.

 

4. Historical Financial Data

The Statistical Array can be used to do personal analysis. The historical data in the center of each report can be used to see how a company has done over a long time frame. This is helpful in identifying trends. For example, look at sales per share to see if they have been rising for an extended period of time. Look at operating margins and net profit margins to see if they have been expanding, narrowing or staying flat. Also check the percentages near the bottom to see if the Return on Total Capital or the Return on Shareholders' Equity have been rising, falling or remaining about the same.

5. Annual Rates Of Change

Annual Rates is located in the left-hand column and shows the compound annual growth percentages for sales, cash flow, and other items for the past 5 and 10 years, and Value Line's projections of growth for each item for the coming 3 to 5 years.

Trends are also important here. Check whether growth has been increasing or slowing and to see if Value Line's analyst thinks it will pick up or fall off in the future. Specific estimates for various data items for the years 2001-2003 can be found in bold italicized type in the far right hand column of the Statistical Array.

6. Target Price Range

In the upper right-hand section of each report is a Target Price Range for each stock. This is the range in which the price is likely to fall during the period 3-5 years hence. The range is based on the analyst's projections in the period 3-5 years out for earnings multiplied by the estimated price/earnings ratio in the Statistical Array for the same period. The width of the high-low range depends on the stock's Safety rank. A stock with a high Safety rank has a narrower range, one with a low rank, a wider one.

7. 3-5 Year Projections

In the left hand column of each report, there is a box containing 3-5 year Projections for a stock price. There the potential high and low average prices forecast can be seen, the % price changes projected, and the expected compound annual total returns (price appreciation plus dividends). To make these calculations, analysts compare the expected prices out 3-5 years into the future (as shown in the Target Price Range and Projections box) with the recent price shown on the top of the report.

Investors whose primary goal is long-term price appreciation should study the 3-5 year projections carefully and choose stocks with above-average appreciation potential. For comparative purposes, the Estimated Median Price Appreciation Potential for all stocks can be found on the front page of the Summary & Index.

  8. Price/Earnings Ratios

Information about Price/Earnings Ratios (P/E Ratio) appears at the very top of the Value Line Page as well as in the statistical section in the center. It is calculated by dividing the price of a stock (usually the current price) by twelve months of earnings. If, for example, a stock is selling at $40 a share and its annual earnings are $2.00 a share, its P/E is 20.