SP Filter – Economic Inconsistencies (US)

In this week’s content analysis, we are applying the pre-made SP filter “Economic Inconsistencies” to the US market. This filter identifies companies that portray anomalies between their accounting performance, as shown in the financial statements, and their economic performance (EVA).

As of September 11th, only five American companies appear on this list: Insperity Inc (NSP), Trc Cos Inc (TRR), Merit Medical Systems Inc (MMSI), Synchronoss Tehnologies (SNCR) and Sterling Bancorp (STL). In order to better explain why these companies are identified by this filter, we will take a look at the executive summary of Insperity Inc (NSP).  Download

In the third section of the report, entitled Economic Performance, the EVA-portraying graph on the left is the graph we are most interested in looking at. On this graph, we can see that the accounting profit (green curve) has been increasing since December 2014, and that the price has had the tendency to follow the accounting profit. On the other hand, the EVA (blue curve), has not stopped diminishing since December 2011. In other words, although the accounting profit is growing, the creation of economic wealth for the company’s shareholders keeps weakening, and has even reached a negative result. The stock has lost 25% in the last six months, and the company’s current EVA does not give the indication that this trend will reverse in the near future. Unfortunately, the market readjusted itself, probably realizing that the increase in accounting profit did not translate to real economic improvement for the company.

In conclusion, do not forget that StockPointer can also help you avoid risky investments, as shown in the above case study. A portfolio that is performing well is obviously based upon the stocks that are held in it, but also by the stocks that are avoided.