Getting To Know Stock Screeners

Stock Screening Basics

Stock screening is the process of searching for companies that meet certain financial criteria. A stock screener has three components: a database of companies, a set of variables and a screening engine that finds the companies that satisfy those variables and generates a list of matches.

Using a screener is quite easy. First you answer a series of questions such as the following:

Do you like large-cap or small-cap stocks?

Are you looking for stock prices at all-time highs, or companies with stocks that have fallen in price?

What range for the price-to-earning (P/E) ratio is acceptable? The good screeners will allow you to search using just about any metric or criterion you wish. When you finish inputting your answers, you get a list of stocks that meet your requirements.

By focusing on the measurable factors affecting a stock's price, stock screeners help their users perform quantitative analysis . In other words, screening focuses on tangible variables such as market capitalization , revenue , volatility and profit margins , as well as performance ratios such as the P/E ratio or debt-to-equity ratio . For obvious reasons, you cannot use a screener to search for a company that makes, say, "the best products".

Customizable Screeners

Three of the best free screeners on the web include those offered by Yahoo Finance, MSN Money and Morningstar. All three have basic screeners and advanced screeners.

The basic screeners have a predetermined set of variables whose values you set as your criteria. For example, one of the variables on the Morningstar basic screener is minimum capitalization, for which you choose one of six different values to be the smallest market cap you want to see in a company.

The more advanced screeners demand more from investors. There are three parts to each criterion setting: the criterion (the variable), the value and the condition. The criterion is the given quantitative metric, such as the P/E ratio, and the value refers to the numerical constraint on the measure. The condition refers to how you want your criterion to compare to the value. If you wanted your criterion to equal the value, you would use '='. If you wanted it to be greater than, you'd enter '>=', and if you wanted it to be less than, you'd use '<='. For example, if you wanted a P/E greater than 25, the variable would be the P/E ratio, the value would be 25 and the condition would be '>='.