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Stock screener is the tool for the traders which the traders use for filtering the stocks according to their own choice and criteria. The stock screener tool enables the trader to follow a certain criteria which is required by the trader before the trader invests in a particular company. Suppose the trader wants to know the list of all the stocks that were listed on the NYSE, in the software industry, having EPS growth of 20% for the past five years annually and had a P/E ratio between 20-30.
So the trader enters the attributes for this criterion in the stock screener and the stocks which match the criteria are displayed as a list on the screen for the traders benefit. T stocks can be screened according to any number of criteria based on the stock screeners capability. So the stock screener is a tool that replaces the research time which would have been months with a single mouse click.
It is a very tedious and time consuming task for the trader to go about researching the stocks when the stock market is so vast that the US alone has more than 17000 publicly traded companies in the stock exchange. So finding a good stock is almost impossible and the amount of data found on the internet makes the sorting of data more difficult. And then, the stock screener comes to the rescue of the trader as it gives the trader a list of stocks that meet the traders demands, strategy and standards. So the trader should know what a stock screener is and how does it work for the trader.
Stock screening refers to the process which searches for companies that meet the financial criteria of the stock trader. A stock screener is composed of three components, first being a database of the companies which are enlisted on the stock exchange, a set of variables or attributes and a screening engine that can make searches for the set of companies that prove correct to the variables by generating the list of companies that match the criteria.
The stock screener is very easy to use. But before that the trader must know what type of stocks the trader wants to look for the large cap or the small cap stocks. Also whether the trader is looking for the all-time highs of the companies or all-time low prices of the companies and what range of the P/E (price-to-earning) ratio does the trader expect from the company.
The good or efficient stock screeners allow the trader to search using any criteria that the trader wishes to use. And when the trader inputs all the criteria then the result displaying the list of stocks which suffice the requirements or criteria of the trader appear on the screen.
The trader gets to perform the quantitative analysis as the stock screeners help the trader by stressing on the factors which are measurable that can affect the prices of the stocks. So it would not be wrong to put that the stock screener lays stress on the variables like revenue, profit margins, P/E ratio, market capitalization and debt-to-equity ratio. So the company can never be searched by its products but by these tangible factors which the stock screener focuses on.
The three best basic stock screeners on the internet those are free are offered by Morningstar, Yahoo Finance and MSN Money. The basic stock screeners have a set of variables that are predetermined and their values are set by the criteria of the trader. For instance the Morningstar basic stock screener has a variable called minimum capitalization for which six differrent5 values are set and the trader has to choose from among these values.
Then there are the advanced stock screeners which ask for more criterias form the trader. Here the criterion is set to three different parts, namely the criterion or variable, the value and the condition. The criterion or the variable demands its input from the given quantitative metric, the value takes the numerical constraint against which to measure and the condition refers to the relation that the trader wants to be created between the criterion and the value. For the condition the relational operators are used which are =, if the criterion is to be made equal to the value, >= for greater than and <= for less than. For example if the trader wants P/E ratio to be greater than 20, then P/E ratio is the criterion, 20 is the value for the criterion, and >= is the condition.
Though many free stock screeners are available on the internet but if the trader wants the best with the latest best technology then the trader has to go in for the subscription of the same.
The trader must take care of certain things when the trader uses the stock screeners. Though the stock screeners are very useful for the trader but they have certain drawbacks also. Most of the stock screeners take only quantitative factors into account and the large numbers of qualitative factors or the intangible factors that should also be considered and are important for the trader to know are left out. These stock screeners never provide the trader with the information of labor problems of a company, the pending lawsuits against the company, and the level of customer satisfaction.
The databases used by the stock screeners get updated on the prescribed and different schedules. So the trader must check for the freshness of the data because untimely data has no value.
The trader should be vigilant about the blind spots that are industry specific. For example not many technological companies will be in the list for less P/E values.
The trader must not forget that the stock screeners are not the magic pill for the selection of the stocks. The old fashioned research cannot be replaced by anything. However the stock screeners help the trader to begin with the research process by providing a platform, saving time and narrowing down the research options.
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