Home O-Metrix Basics
O-Metrix Grading System PDF Print E-mail
Written by Dr. Econ   
Wednesday, 13 July 2011 00:00

O-Metrix Grading System is a very simple, yet powerful grading system. I first read about it at Prof. Jeremy Siegel's book, Stocks for the Long Run:

"A rule of thumb for stock valuation that is found on Wall Street is to calculate the sum of the growth rate of a stock's earnings plus its dividend yield and divide by its P-E ratio. The higher the ratio the better, and the famed money manager Peter Lynch recommends investors go for stocks with a ratio of two or higher, avoiding stocks with a ratio of one or less."

Peter Lynch is one of my favorite money managers. It is quite amazing that Fidelity's Magellan Fund returned almost 30% every year, between 1977 and 1990. He has some really good skills. I was wondering where to put the dividends in a fair value estimation model. This methodology is an excellent grading system where dividends are perfect substitutes for growth. Thus higher dividends makeup for lower growth expectations. Surely, you want the total to be as higher as possible. You also want to get a good deal at a cheap P/E ratio. Thus the O-Metrix score is calculated as the following:

O-Metrix = 5 x (Dividend Yield + Expected Growth) / PE Ratio

I multiplied by 5, to get a scale over 10. As an investor, our mission is to find companies with 10+ grades. It is a hard challenge. However, any company with 5+ grade is also acceptable. If you are a dividend oriented investor, living on dividends, a Double Dividend (DD) O-Metrix is more suitable for your needs:

DD O-Metrix = 5 x (2 x Dividend Yield + Expected Growth) / PE Ratio

Again the aim here is to find the companies with highest DD O-Metrix scores.

Dividend yield is the current dividend yield. Simply taking the average of trailing twelve month and forward PE ratios will do the work. For the expected growth parameter, I use the long-term annualized EPS growth estimations. I regularly perform back-tests on O-Metrix models. You can find the results here.


Attachments:
FileDescriptionUploaderFile sizeLast modified
Download this file (FairValueFinalWeb.xls)O-Metrix CalculatorDownload Free O-Metrix CalculatorDr. Econ31 Kb10/09/11 12:11
Last Updated on Thursday, 06 October 2011 06:49
 

Comments  

 
0 #27 Nicole 2015-06-24 19:42
Good information. Lucky me I recently found
your website by accident (stumbleupon). I have
saved as a favorite for later!

My page - google plus android: http://support.google.com/plus/answer/6135499?hl=en
Quote
 
 
0 #26 Juli 2015-06-22 17:26
Avataria Compromise can certainly generate infinite levels of Silver and Gold on your bill in a subject of minutes!



My web site ... avataria hack online - www.sol-storona.ru: http://www.sol-storona.ru/component/k2/itemlist/user/19892 -
Quote
 
 
0 #25 Herman 2015-06-12 14:00
No doubt you are looking for a less strenuous and faster method
to construct your bottom and acquire all the great features Clash of Clans provides.


Here is my website: clash of clans th7 build order: http://Telechargerfarcry4.com
Quote
 
 
0 #24 Margene 2015-05-21 16:51
These are actually fantastic ideas in about blogging.
You have touched some nice things here. Any way keep up wrinting.



Also visit my web-site - 03/21/12: http://www.essay-pedia.blogspot.com/2012_03_21_archive.html
Quote
 
 
0 #23 Rosa 2015-02-27 12:07
Если вы все же пропустили проект, который очень хотели посмотреть, то можете поискать его
на нашем сайте в записи. Новости Онлайн
Смотреть Нтв: http://xn----ctbk1acjofgfc4j.xn--p1ai/
Quote
 
 
0 #22 Mari 2015-01-05 21:31
Every weekend i used to go to see this site, because
i wish for enjoyment, ass this this site conations genuinely fastidious funny material too.


my web-site mass ping: http://www.adpend.com
Quote
 
 
0 #21 Natalie 2015-01-05 07:02
Hey I kow this is off topic but I was wondering if you knew
of any widgets I could add to my blog that automatically tweet my
newest twitter updates. I've been looking for a plug-in like
this for quite some time and was hoping maybe you would hqve
some experrience with something like this. Please let mme know if you run into anything.
I truly enjoy reading your blog aand I look orward to yourr new
updates.

My homepage; Traffic Exchange: http://www.adpend.com
Quote
 
 
0 #20 Kandy 2014-12-22 03:12
My family every time say that I am wasting my time here at net, however I
know I am getting familiarity every day by reading such
fastidious articles or reviews.

Here is my web site - 2020 Tax Resolution in EBusiness Pages: http://ebusinesspages.com/2020-Tax-Resolution_d1fem.co
Quote
 
 
0 #19 Emily 2014-12-02 16:14
Hey there I am so glad I found your web site, I really found you by mistake,
while I was lookng on Aol for something else, Anyways I am here now and
would just like to say thank you for a marvelous post
and a all rround interesting blog (I also love thee theme/design), I don't have time to
read through it all at the moment but I have book-marked it and also added yoour RSS feeds,
so when I have time I will be back too read more, Please do keep up the fantastic work.



Look into my weblog - Traffic Exchange: http://a.indoflyer.net/?http://www.adpend.com
Quote
 
 
0 #18 Shanon 2014-10-31 08:04
Stunning quest there. What occurred after? Thanks!

My web page - http://www.boilerrepairuk.co.uk/boiler-maintenance-in-burgh-le-marsh-lincolnshire/: http://www.dodoshare.com/games/profile/datcgi
Quote
 

Add comment

Comments are greatly appreciated.

Security code
Refresh

 
. .