Stock Screening with Turnover, Order-Flow Ratio, and Positive PE

Summary

This document proposes screening stocks for turnover between 3% and 12%, an external-to-internal trading volume ratio above 1.3, and positive price-to-earnings. It presents turnover as a measure of market activity, the volume ratio as an indication of buying interest, and positive PE as a basic profitability-related filter. Formula and Python examples illustrate how to apply the criteria to stock data.

The article suggests the screen may help find actively traded stocks with positive earnings, but it does not provide backtest results or evidence that the filters identify undervalued shares. It cautions that PE alone can be unstable and cannot establish that a stock is cheap; other company fundamentals may be missing. It recommends adding measures such as price-to-book, earnings, and total assets for broader assessment. The method is a preliminary selection rule and would require further analysis before being used as a complete investment strategy.

Key ideas

• The screen requires turnover between 3% and 12%, an external-to-internal volume ratio above 1.3, and positive PE.
• Turnover is used as an activity filter, while the volume ratio is treated as a proxy for buying interest.
• Positive PE alone does not show that a stock is undervalued.
• The article recommends considering other fundamentals, including price-to-book and earnings measures.
• No backtest or performance evidence is presented.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.