What are the most useful stock data points to help you make profitable trading decisions?
There are so many moving parts of a stock and there is so much data. Equity analytics platforms for retail are very basic and miss vast data sets. ORTEX was created to enable retail investors to access data sets that were previously incredibly expensive or difficult to obtain. We also want to educate retail investors on what data points are important.
Most investors, however sophisticated, have some sort of fundamental or technical process when it comes to selecting what stocks to trade. ORTEX is a global equities analytics platform that have identified data points that have historically been extremely effective in helping investors make profitable trading decisions.
Our quantitative team have back-tested vast and varied data sets; We identify the following categories as data points that have created the highest short-term alpha (profit versus the index benchmark) historically.
In this article we will be focusing on three data sets.
EPS estimate/stock divergence – What does that mean and why are analysts important.
SHORT INTEREST – why it matters
INSIDER analysis – how much do they know?
EPS estimate/stock divergence; What does that mean and why are analysts important
Most investment banks and brokers hire equity analysts who learn everything they possibly can about a few companies that they cover. They frequently talk to institutional investors who want to understand specific things about a company. These guys live and breathe the handful of
companies they cover. They talk to the Investor relations and senior management constantly, they understand the industry and competition and all the financials and fundamentals. They usually have a BUY, HOLD or SELL rating on the stock and a 12 month forward stock target price.
They build detailed and intricate models of a company and estimate all future financials.
12 month forward EPS consensus vs stock price divergence;
Earnings per share (EPS) is a company’s net profit divided by the number of common shares it has outstanding. EPS indicates how much money a company makes for each share of its stock and is a widely used metric for corporate profits. A higher EPS indicates more value because investors will pay more for a company with higher profits. Earnings multiples are the foundation for most stock prices. ORTEX EPS momentum tracks analyst’s upgrades and downgrades of stock estimates, using the most accurate intra-day data. Imagine there are 10 analysts covering a stock and each analyst has a unique estimate of future EPS. ORTEX take an average of these estimates and creates an EPS consensus. This EPS consensus is also calculated looking at 12 month forward estimates. Further the consensus estimates are weighted based on the historical performance of the analyst so that a particularly good analyst has a stronger weighting in the consensus change. What is very interesting to track is the difference between ORTEX EPS 12 month forward change and stock price change. This is the 12 month forward EPS consensus vs stock price divergence.
See the below example for NIKE. You can see that the green share price line usually bounces back towards the blue consensus EPS change. There is currently a large diversion between the share price and the EPS line. While the stock has rallied, analysts estimates have continued to drop. It is likely that the stock price will revert back down towards the EPS consensus change line.
In the ORTEX trading signals section, 4 and 5 star EPS/stock divergence trading signals have returned an average 18% per trade since inception! Our quantitative analysts not only look at the divergence but also look at the average and what the likelihood of the divergence reverting back to normal will be if it hits a relative extreme level.
In the below EPS trading signal for Leonardo S.P.A, you can see that ORTEX has identified a clear extreme level of EPS/Stock divergence that tends to revert back to normal, creating very profitable and consistent BUY signals.
As mentioned above, just having a general understanding of overall analyst’s views and who are the best analysts is valuable data. ORTEX provides timely and accurate, up to the minute analyst recommendation changes and Target price/estimate changes.
ORTEX have rigorously ranked equity analysts globally, using a comprehensive and unique methodology so you can understand which analysts are worth following and what likely impact their estimate changes will have (ranked by a stock, sector or region).
This gives retail investors a rare glimpse in to an overview of institutional equity coverage.
Short statistics and trends are a crucial element in understanding how a stock behaves and how sentiment surrounding a stock is developing. ORTEX Short interest data is sourced from the world’s largest combined pool of Agent Lenders, Prime Brokers, and Broker-Dealers who submit their inventory. ORTEX provide timely (intra-day) and accurate Short data, such as shares on loan, utilisation rate, days to cover, and free float on loan.
Understanding the latest short sentiment can be helpful for many reasons. For example, there may be a stock that has vast amounts of short interest and a positive surprise could lead to a short squeeze as investors that are short scramble to buy back the borrowed shares. Understanding how much volume is on loan and may need to be covered is important. Equally, if there is a sudden dramatic increase in short interest it may be valuable to understand why and what the story or reason is. When back-testing data, ORTEX found that a sudden SHORT increase to a new relatively high level was typically a strong SELL indication. Below we see an example where a certain level of short increase always leads to a subsequent fall in share price. ORTEX trading signals will flag this and tell you the holding period and likely return based on that signal historically.
In the US, stock exchanges only offer short interest data twice a month and this data is also delayed by over a week, leaving investors in the dark regarding daily short selling activity. ORTEX fills this void with daily up‑to‑date information from the global securities finance market and enables users to gauge changes in investor sentiment. This data is updated by 7.30am EST each day with current stock borrows – you won’t find more timely or accurate data. ORTEX also take the delayed official exchange data (eg. From NYSE or NASDAQ) and adjust accordingly by using the relevant percentage change of our intra-day stock lending data to give users another useful estimate of the very latest daily short positioning.
For example, below you see bi-monthly delayed exchange data in blue. The purple estimated short interest line shows a sharp decline making it clear that the next exchange report will show a sharp decline and you get the data point first.
In addition, In Europe, financial institutions are required to flag to the local regulator whenever they go over or back under certain thresholds. This provides valuable and timely additional data. ORTEX add these flags intra-day as soon as the regulator publishes them. ORTEX aggregate an institutions overall current short position and lists all the latest flags so users get an accurate idea of very latest sentiment.
Below you see a sharp recent trend in short interest and a very weak share price. You can now see a clear picture of what institutions are short and who is adding to the short or buying stock and covering the short. The list on the right shows a green arrow if an institution is buying back on the last disclosure and red if they are adding to the short. When you start to see a trend of large short positions buying back stock, it often leads to a continued short squeeze and the stock will outperform. Below is an example of the Short interest data available for Cineworld.
Insider analysis and director dealings
Insider transactions and holdings can provide significant insight and alpha generating signals. Our data identifies how and why an insider transaction has occurred, the position of an insider within a company, the type of transaction and size of trade vs. overall position.
It is useful to gauge a combined total of insider activity over a recent time period. For example, you can see below that there were 33 insider transactions to SELL totalling €135m versus 2 BUY transactions totalling just 264k. This takes a lot of data and gives a quick and clear snapshot of insider sentiment.
Sometimes specific insiders are historically very skilled at picking BUY and SELL levels in the stock. ORTEX create unique rankings on the significance of every insider transaction. We have ranked insiders on past performance, so you can understand how effectively they typically trade but also take in to account other factors such as size of transaction vs total position and position within the company.
As above, you will often see key insiders pick very timely BUY and SELL opportunities as they generally have such a sound understanding of what’s happening within the organisation. As in the chart above, ORTEX users can get a valuable overview of all insider transactions.
There are plenty of other really hard to find and important data sets that you can find at ORTEX and in the next article we will cover;
INDEX REBALANCES – What are they and why do they matter?
CORPORATE EVENTS analysis, can you see a pattern.
CORRELATION analysis – Peers / Currency / Commodity
VALUATION and YIELD – 12M forward est. vs industry / peers / historic