Stock Doctor identifies a select group of fundamentally superior companies called Star Growth Stocks.
Lincoln’s Star Growth Stock list is the result of an extensive and objective screening process which identifies the healthiest, most profitable ASX listed companies. To earn their place on the Lincoln shortlist, Star Growth Stocks are characterised by their consistent Financial Health, solid financial track record and good growth prospects with manageable active risks.
As such, Star Growth Stocks may be attractive investment opportunities that warrant further investigation for those investors seeking capital appreciation ahead of income distributions from their investments.
However, it should be emphasised that just because a company is flagged as a Star Growth Stock, this does not guarantee share price appreciation. There are many factors that can cause a decline in share price, such as, overvaluation, recession, a bear market, an underperforming industry, increasing interest rates, or simply negative market sentiment. Therefore, before your final investment decision is made, it is imperative that you apply Lincoln’s Nine Golden Rules with your own strategies, techniques and further research using the additional tools and features provided in Stock Doctor.
New Star Growth Stocks may be added to the list after each interim and annual reporting period provided they satisfy Lincoln’s benchmark criteria for Golden Rules 1, 2 and 3, which are outlined in more detail below.
Golden Rule 1: Financial Health
The first and most important golden rule. Lincoln's unique Financial Health model, the L Score, assesses key accounting ratios relating to each company's profitability, cashflow, liabilities and assets. It then determines a Financial Health rating commensurate with the business risk of the company. To meet these criteria a stock must exhibit Strong or Satisfactory Financial Health ratings. A company must be healthy for at least two consecutive periods or more. It is not sufficient for a stock to be healthy for solely one period.
Financial Health is measured on a scale of Strong (blue) to Distress (red).
Golden Rule 2: Past Financial Performance
Lincoln uses the following factors - Return on Equity (ROE), Return on Invested Capital (ROIC), Net Profit Margin, Earnings Quality (Accruals) and Earnings Growth to assess a stock depending on the industry it is in.
The gold star next to the Star Growth Criteria denotes that it has met Golden Rule 2 from a capital appreciation perspective.
At Lincoln, our analysts do not model forecasts earnings, rather, we look at identifying the active risks that could materially change the growth expectations of a company relative to their consensus forecasts.
A company can be removed as a Star Growth Stock by our Analysts at any time if a negative announcement is released that will affect the company's ability to continue to meet Lincoln’s benchmark criteria in the future.
Most of the time, a stock will be removed due to heightened active risks which may result in lower than expected forecast growth figures. A company may also lose its Star Growth Stock status at the time that their annual or interim financial results are analysed.
We will always validate our decision within the Analyst and Strategic Commentary.
It is important to note that Star Growth Stocks may include companies that are Star Income Stocks, however this is not a requirement for a company to be considered a Star Growth Stock.
If you would like to discuss a company’s Star Growth Stock status, members can contact our Research team via email at firstname.lastname@example.org or speak to the team directly on 1300 676 333.