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PLY scoring is a ranking system that reflects companies' relative investment attractiveness. System is based on five key financial aspects: valuation, growth, profitability, financial strength and free cash flow. Each of these components is also ranked based on most important fundamental metrics. Total Score ranges from 0 to 10, with 10 as a highest rank that reflects most attractive companies from investing perspective.

We found that there exists strong and persistent positive correlation between Total Score and forward average performance of companies’ stocks. Higher levels of Total Score are usually associated with stronger forward average returns of stocks. This correlation holds persistently across various markets and stocks’ forward return periods. Detailed metrics of this relationship are presented in our interactive Forecasting Model.

PLY provides Fair Value estimations for company’s stocks and compares it to actual Market capitalization. Respectively, Valuation Gap is calculated as a difference between company’s actual Market Cap and Fair Value.

We found that there exists strong correlation between the level of Valuation Gap and forward average performance of companies’ stocks, though direction of correlation depends on time horizon of forward stock return. On the 6-months horizon negative correlation between Valuation Gap and forward average returns exists. That means that overvalued stocks tend to became more overvalued in the short term and confirm momentum effect in short-term stock returns. However, on the longer time horizons this correlation reverses and became positive. That means that on the longer time horizons overvalued stocks significantly underperform undervalued stocks and confirm mean reversion effect in long-term stock returns.