Investing Glossary

The excess return of an investment relative to a benchmark index. Positive alpha means the investment outperformed; negative alpha means it underperformed.

A measure of a stock's volatility relative to the overall market. A beta of 1.0 means the stock moves with the market; above 1.0 means more volatile, below 1.0 means less volatile.

The net asset value of a company — total assets minus total liabilities. Book value per share divides this by shares outstanding.

A single number that combines multiple factor scores into one overall ranking. Our composite score blends six factors to rank stocks from 1 (worst) to 100 (best).

Buying assets that are currently out of favor with the market, betting that pessimism is overdone and prices will recover.

Current assets divided by current liabilities. Measures a company's ability to pay short-term obligations. Above 1.0 means more assets than liabilities.

Total debt divided by shareholders' equity. Measures how much a company relies on borrowed money versus owner capital.

Spreading investments across different assets to reduce risk. The idea is that losses in one holding are offset by gains in another.

Annual dividends per share divided by the stock price. Represents the cash return you get just for holding the stock, expressed as a percentage.

Investing a fixed amount at regular intervals regardless of price. Reduces the risk of investing a lump sum at a market peak.

Earnings Before Interest, Taxes, Depreciation, and Amortization. A measure of operating profitability that strips out accounting and financing decisions.

Market cap plus debt minus cash. Represents the total cost to acquire a company, accounting for its capital structure.

Net income divided by shares outstanding. The most common per-share profitability measure. Higher EPS generally means more profitable.

A percentile ranking (1–100) for a single investment characteristic like momentum or value. Used to compare stocks on specific dimensions.

Cash generated by operations minus capital expenditures. The truest measure of how much cash a business actually produces.

Revenue minus cost of goods sold, divided by revenue. Shows how efficiently a company turns raw inputs into revenue.

In our model: revenue growth rate and asset growth. Captures whether a company is expanding its business rapidly relative to peers.

Selecting stocks with above-average revenue or earnings growth, even if they appear expensive on traditional valuation metrics.

Stock price multiplied by total shares outstanding. Categorized as mega-cap ($200B+), large-cap ($10–200B), mid-cap ($2–10B), small-cap ($300M–2B), and micro-cap (under $300M).

The prevailing market condition — bull, bear, sideways, or crisis — defined by trend direction and volatility levels.

In our model: 6-month and 12-month price returns. Captures the tendency of recent winners to continue outperforming.

Buying stocks that have been rising (winners) and avoiding stocks that have been falling (losers), based on the tendency of trends to persist.

Operating income divided by revenue. Shows what percentage of revenue remains after all operating expenses. A direct measure of core business profitability.

Stock price divided by book value per share. Compares what the market values a company at versus its accounting net worth.

Stock price divided by earnings per share. The most widely used valuation metric — shows how much investors pay per dollar of profit.

Market cap divided by annual revenue. Useful for valuing unprofitable companies where P/E ratios don't apply.

P/E ratio divided by earnings growth rate. A PEG of 1.0 means the stock is fairly valued relative to its growth; below 1.0 suggests undervaluation.

In our model: gross profitability, operating margins, ROE, and cash-based measures. The single most important factor in our rankings.

The year-over-year percentage increase in a company's total sales. One of the simplest measures of business expansion.

Net income divided by shareholders' equity. Measures how efficiently a company generates profit from investor capital.

After-tax operating profit divided by total invested capital. The best measure of how well management allocates capital.

The percentage of a stock's float that has been sold short. High short interest can signal bearish sentiment or potential for a short squeeze.

In our model: short interest as a percentage of float. Low short interest stocks tend to outperform, signaling institutional confidence.

Investment strategies that use alternative index construction rules instead of market-cap weighting. Essentially a bridge between passive and active investing.

In our model: earnings yield, book-to-price, and cash flow yield. Captures whether a stock is cheap relative to its fundamentals.

Buying stocks that trade below their intrinsic value based on fundamental analysis. Originated with Benjamin Graham and David Dodd.

In our model: realized volatility and idiosyncratic risk. Lower-volatility stocks have historically outperformed on a risk-adjusted basis.

A statistical measure showing how many standard deviations a value is from the mean. Used to make different metrics comparable on the same scale.