Leeway Scoring

The algorithms of the Leeway method analyze the data of the last three years and determine from this the most suitable patterns and configurations for the current market situation. Leeway calculates the company's rating according to the statistical behavior patterns of this period using a selection of 18 selected fundamental indicators.

Based on its framework data, such as sector, country or market value, each company is included in a group. This clustering step allows consideration of the characteristics of individual companies. A real estate group operates differently than a tech specialist. Through clustering, the algorithms group companies into comparable groups and can thus analyze them in a type-specific manner.

What is a "good stock"?

For an optimal stock for developing a stable portfolio, we identified three core components in development: performance (total return including dividends), probability of profit and the standard deviation of forecast dispersion. Simply put, a promising investment should generate returns with high probability and this return should be as high as possible and as precisely calculable as possible. The ranking thus determines the best stocks in absolute terms for a one-year period.

How does the evaluation work?

For this purpose, the key figures (margins, growth rates, debt, valuations, dividends) are cleaned of extreme outliers and missing values are set to a medium default value. Then a weighted average is calculated from the data of recent years and a trend-based forecast. This average is grouped into the corresponding bucket in the backtests.

For example, the algorithm receives a return on equity of 34.04% for ASML as a key figure. This puts ASML for return on equity in the backtest bucket of companies with returns of 30 to 50%. Stocks from ASML's clusters with these returns on equity have achieved an average annual performance of 14.6%.

How do the Leeway Scores emerge from this?

The average annual values of the backtest such as the mentioned performance as well as probability of profit, standard deviation and also frequency is summarized into the Leeway Score. This Leeway Score is determined for each key figure as described and leads equally weighted to three category scores profitability, finances and valuation and then ultimately to the final Leeway Score or Market Fit Score of the stock as a whole.

In addition to the Market Fit Score, Leeway also calculates the Growth and Value Scores. For this, only the Leeway ratings for the categories profitability and finances are considered and in the second step classic growth and value aspects are evaluated. For Growth, a low valuation and defensive finances (low debt, high equity, solid payout ratio) are rated negatively. For Value, we reverse the system. Low valuation is rated positively as is a defensive and solid positioning of the financial situation.

Full Transparency!

The key figures used and their values can all be seen on the detail pages of the stocks. The distribution of the key figures can also be found on the page in the Key Figures tab.