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 #85 Mathias 2018-02-18 10:56
I was suggested this website by my cousin. I
am not sure whether this post is written by him as no one else know such detailed about my problem.
You're incredible! Thanks!

Here is my web site; dobry adwokat lodz rozwod: https://is.gd/HBH7Tg
Quote
 
 
0 #84 Alisha 2018-02-16 13:46
casino slots
play casinos: https://hotlistcasinogames.com/
casino online
best online casino: https://hotlistcasinogames.com/
play casino games online
Quote
 
 
0 #83 Liza 2018-02-08 00:18
weight loss prescription drugs
diet pills: http://regimenforfeit.com/
weight loss drugs prescription
garcinia cambogia: http://regimenforfeit.com/
diet supplements that work
Quote
 
 
0 #82 Jenni 2018-02-05 22:14
casinos online
free online casino slots: https://casinoveganonline.com/
slot online
casinos online: https://casinoveganonline.com/
free real money casino no deposit
Quote
 
 
0 #81 Diana 2018-02-05 11:18
best supplements for weight loss
weight loss medications: http://regimenforfeit.com/
gnc diet pills that really work
top weight loss supplements: http://regimenforfeit.com/
weight loss medications prescription
Quote
 
 
0 #80 Whitney 2018-02-04 21:57
We routinely test for gonorrhea, chlamydia, and HIV.

My web page; STD Testing Near Me: http://stdtestinglocations.alltdesign.com/free-clinics-std-testing-near-me-archives-7216129
Quote
 
 
0 #79 Tammi 2018-02-04 12:59
The BESTD Clinic offers its providers without charge.


My site; STD Testing Near Me: http://stdtestingnearme.amoblog.com/discover-native-anonymous-std-testing-close-to-you-8094786
Quote
 
 
0 #78 Carley 2018-01-28 15:25
payday loans no credit check
payday loans: https://smajloans.com/
payday loans online
payday loans: https://smajloans.com/
payday loans online
Quote
 
 
0 #77 Margherita 2018-01-21 17:01
triple diamond slots 5x
real money casino online: http://bablcasinogames.com/
triple diamond slots 5x
casino games online real money: http://bablcasinogames.com/
absolutely free slots for fun
Quote
 
 
0 #76 Edgardo 2018-01-21 08:04
payday loans
payday loans: https://smajloans.com/
payday loans online
payday loans: https://smajloans.com/
payday loans
Quote
 

Add comment

Comments are greatly appreciated.

Security code
Refresh

 
. .