Is fundamental analysis any good?


Active member
240 2
After a recent clear-out I came across "The Recovery Report 2002-2003" from Fleet Street Publications Ltd, written by David Stevenson. This was a report listing 30 shares with value at the time and expected to rise by an above-average level. From those 30 the author hi-lighted 12 that he would personally place his money, and a further 6 on a Watch List.

Well, I just couldn't resist seeing how his strategy performed. Here are the share lists, and the attached spreadsheet shows the results from July 1st, 2002 when the report was released:

The 6 Best Steady Performers
(1) Brandon Hire
(2) Legal & General
(3) Monsoon
(4) T & S Stores
(5) Waterman Group
(6) Whitehead Mann

The 6 Best Bargains
(1) Galen Holdings
(2) Innovation Group
(3) Minorplanet
(4) Pharmagene
(5) Private Equity Investor
(6) Westbury

Author's Watch List
(1) Amey
(2) Holidaybreak
(3) Imperial Tobacco
(4) Menzies
(5) Rutland Trust
(6) Trafficmaster

As you can see from the results, the "Best Bargains" performed badly, the "Steady Performers" were steady (!) and the "Author's Watch List" romped home with 92.1% if shares held to 18/05/04! If all 12 shares had been invested in it would be worth 32% more than in July 2002.

I can't remember the cost of the report, but wish now I'd had the money to invest at the time! What's interesting is that if this information had been combined with simple Technical Analysis for entry and exits, the results would have been far, far greater.

For those interested, here are the filters the author used to select this shares:

Screen 1:
  • Current PE ratio between 4 and 15 and forward ratio 13
  • Dividend yield over 3% per annum
  • 2002 forecast earnings growth at least 9%
  • Market capitalisation above £20mil
  • No recent sales or earnings warnings
  • Only shares which have actually increased in price in the last year

Screen 2: Rewards and punishments
The system particularly rewards companies with excellent long-term growth rates (earnings, profits and sales growth), strong forward-looking growth in earnings per share, above-average yield in dividends, very low PEGs and a strong balance sheet in terms of net cash or low debts.

  • Yield: Above 4% is above average and above 5% is providing a rate of return above high street savings rates
  • Market capitalisation: A company with a market valuation above £1bn is defined as large cap, and favourable
  • PEG ratio: The lower the better, with really impressive ratios below 0.5. Most around 1
  • PE ratio: The lower the better
  • Sales/profits/earnings growth over five years: we benchmark at 60% growth over 5 years in all three measures, which equates to 10% compound annual growth, twice the rate of the wider economy
  • ROCE: Return On Capital Employed - an indicator of how a company is managing its assets and capital
  • Net Gearing: The higher the percentage, the more in debt. A negative figure indicates net cash
  • Net margin: The higher the net margin the better, the lower the more susceptible to small changes in competitiveness
  • Interest cover: Interest cover of cash flow over interest payments on debt
  • Margin trend: The trend in the net margin over the last five years. An increase in margin is good, a decrease bad
  • PBTV: Price To Tangible Book Value - below 1 indicates a company valued at less than its realisable assets; above 1 indicates a premium to book value
  • Director buys and sells: These are within the last 6 calendar months. Obviously, major director buying is a strong indicator of management confidence, and vice versa.


  • RecoveryReport.xls
    18 KB · Views: 533


Active member
240 2
Sorry Oatman, I only bought that one report. Actually, I think the 2003-2004 report wasn't being sold... maybe the market conditions weren't favourable for finding value shares... maybe the author was doing other things. I don't know.

I published this information incase someone could make use of the screen techniques, and out of general interest - personally I tend to use TA now, with fundamentals for "big news days". One doesn't often see published share recommendations backtested after a year, so I thought it'd make interesting reading (for someone!).


Well-known member
349 36
I think its like any other style of investing

If you have an aptitiude for 'that' area and put in the time, yes fundamental anlysis can make you money. Both Warren Buffet and Peter Lynch have seriously outperformed their peers with what could be called fundamental analysis.
That being said, not everyone can do this well (certainly not me). Then you get the other end of the spectrum, Lynch and Buffet can't do what a succesful trader does either.
Imo, there are several succesful ways to make money in the mkts, if not more and yet they share little in common, except perhaps the common need for hard work, diligence and stick-to-ittiveness.


Experienced member
1,286 12

Thank you for taking the time to post your analysis and screens.

There are 18 shares in total, more than most people would invest in at any one time. If you had picked one group of 6 or made a selection from the 3 groups the result might easily have been very poor or mediocre.

I don't think that it is a very good advert for fundamental anlysis or at least this version of it.


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