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 #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
 
 
0 #17 Ermelinda 2014-10-21 19:31
Greetings! Very useful advice within this post!
It is the little changes that make the most important changes.
Many thanks for sharing!

Feel free to surf to my webpage :: customessaywrit ingonline.com: http://customessaywrit ingonline.com/
Quote
 
 
0 #16 Terri 2014-10-21 01:57
It is perfect time to make some plans for the longer
term and it's time to be happy. I've read this put up and if I may I desire to counsel you some interesting things or advice.
Perhaps you can write next articles regarding this article.
I desire to read more issues about it!

Also visit my blog post; read here: http://www.rssfeedgroup.com/article.php?id=78848
Quote
 
 
0 #15 Shani 2014-10-19 03:20
No matter if some one searches for his required thing, so he/she desires to be available that in detail, so that thing
is maintained over here.

Check out my web page write-essay-here.com: http://write-essay-here.com/
Quote
 
 
0 #14 Emily 2014-10-19 00:23
I got this web site from my buddy who shared with me regarding
this web site and at the moment this time I am browsing this web page and reading very informative articles at this place.



Feel free to visit my web site - read
here: http://listbuildingproducts.net/14098/essay-from/
Quote
 
 
0 #13 Bernadine 2014-10-17 14:21
Hi! Would you mind if I share your blog with my zynga group?
There's a lot of people that I think would really appreciate your content.
Please let me know. Thanks

Here is my page: http://customessaywritingonline.com/: http://customessaywritingonline.com/
Quote
 
 
0 #12 Lakeisha 2014-10-17 13:16
I am really loving the theme/design of your website. Do
you ever run into any browser compatibility problems? A handful of my blog readers have complained
about my site not working correctly in Explorer but looks great in Chrome.
Do you have any suggestions to help fix this problem?


my page http://essaywritingservicenow.com/: http://essaywritingservicenow.com/
Quote
 
 
0 #11 Vanita 2014-08-11 21:59
Foreclosures, short selling and bank owned real property usually require some upgrades and repairs.
These properties area less complicated investment that don't need exhaustive
understanding and analysis comparable to other
types of property investment you can make.
Getting this loan pre-approval will mean that you qualify for a and you'll
be able to find out how much loan you quality for.

Here is my page: www.sollusimoveis.com.br: http://www.facebook.com/sollusimoveis
Quote
 
 
0 #10 Julianne 2014-08-08 06:10
Due to the current economic climate the growth market will remain low for a while making buy to
let property a highly attractive prospect.
Daytona is referred to as a spring break plus family playground about Florida's east coastline regarding 50 miles northeast of Orlando.
They invest based on the financial performance of the investment.


Feel free to surf to my web site :: imobiliaria em goiania: http://australiarussia.com/guestbook/
Quote
 
 
0 #9 Guy 2014-08-06 10:16
This is the perfect time to start your property investment portfolio.
There is stability about having an investment property inside Miami that will
also be utilized as a family resort. These areas are
growing rapidly and investors from the different part of India
and abroad countries are investing their hard earn money
in residential real estate sales.

Here is my blog; http:www.sollusimoveis.com.br: http://www.facebook.com/sollusimoveis
Quote
 

Add comment

Comments are greatly appreciated.

Security code
Refresh

 
. .