Check 1: Trendlyne DVM Scores

Trendlyne provides you with three scores for every stock:Durability, Valuation and Momentum (DVM).

Stocks are ranked from 0 (worst) to 100 (best) on each score. This score helps the investor refine the stocks they want to invest in.

Look for stocks that are scoring high across all three scores.

Durability Score: The Durability Score checks the quality of a company’s financials, its long term performance, and the quality of management.

Durability scores above 55 are considered good(G) and below 35 are considered bad(B). Scores between 35-55 are considered neutral/Medium/Middle(M). See the DVM score classification table.

Stocks with a high durability score (top 20 percentile) are companies that have consistently and over time, demonstrated good growth and cashflow, stable revenues and profits, and low debt.

Valuation Score: The Valuation Score checks how expensive the stock is versus its peers.

Valuation scores above 50 are considered good(G) and below 30 are considered bad(B). Scores between 30-50 are considered neutral/Medium/Middle(M).

Valuation is less important in bull markets, but becomes a serious factor in bear markets.

Stocks with a high valuation score (top 20 percentile) are companies whose business and financial advantages may not have been priced into their share price. These companies typically have strong earnings but are currently flying under the radar, and Trendlyne’s valuation score helps shine a spotlight on these companies.

Firms with a low valuation score (bottom 20 percentile) are expensive stocks that have good broker coverage and already have their strengths priced in. If you are buying them now it may be for a steep price tag: valuation scores help you identify that.

Momentum Score: The Momentum Score tracks the bullishness or bearishness of a particular stock relative to the entire stock universe.

The Momentum score identifies the bullish/bearish nature of the stock. Stocks with a high momentum score (which is calculated daily from over 35 technical indicators) are seeing strong buying interest, and increase in volumes and sentiment.

A Momentum Score above 59 is considered good(G) and below 30 is considered bad(B). Scores between 30-59 are considered neutral/Medium/Middle(M).

Stocks that are green on all three DVM metrics are rare because of the fairly stringent score. Stocks that score high in durability, valuation, momentum, as well as across the DVM, tend to outperform the index.

Check 2: SWOT Analysis (Strengths, Weaknesses, Opportunities, Threats) and Checklist

A second important check for quality stocks is the SWOT and checklist.

Trendlyne’s SWOT analysis (example) provides an overview of the strengths and weaknesses of every stock, as well as the opportunities and threats they are facing.

Look for this on every stock page:

The detailed SWOT analysis is available when you click on this SWOT tab.SWOT provide a quick summary of how the stock is doing in terms of their financials, technicals, shareholding, volumes and other parameters.

Look for stocks with a high numberof strengths and opportunities, and a low number of weakness and threats.

Another check is the checklist pass/fail for the stock (example). The checklist score tells you how many tests the stock has passed in financials, shareholding, peer comparison and momentum.

Check 3: PE Buy/Sell Zone of the stock

The PE Buy/Sell Zone tells you whether a stock’s PE is currently undervalued or overvalued, compared to the range it typically trades in.

What is the PE ratio? The Price to Earnings ratio (PE ratio) for a stock tells us how expensive or cheap a company’s share price is relative to its earnings.The price to earnings ratio is simply put, the price an investor needs to pay (invest) to receive Rs. 1 of the company’s earnings.

So if a company is trading at a P/E of 25, it means that investors are willing to pay Rs. 25 in price for Rs. 1 for current earnings. This means that investors are valuing the stock at 25x its current earnings, and they expect earnings to grow in the future.

Checking the PE buy/sell zone

Check if the stock you are interested in is in the PE buy zone or sell zone. A buy zone/sell zone calculation for P/BV is also available.

The PE buy/sell zone (example) is calculated based on what % of days a stock has traded at its current PE level. To calculate this, we compare the current PE to the stock’s historical PE performance, to find out for how many days in the past the stock has traded at its current PE value.

If the stock has usually traded above its current PE level (it’s at a higher PE for the majority of trading days), then the stock is cheaper than usual and in the PE buy zone.

If the stock has usually traded below its current PE level (it’s at a lower PE for the majority of trading days), then the stock is more expensive than usual and in the PE sell zone.

Look for the Check Buy or Sell button under the stock name on the overview page.

Additional checks you can do:

• If you are trying to decide between two stocks, try the Compare Stocks check
• Check analyst sentiment for the stock via the Forecaster dashboard and Research Reports
• Check the stock’s outperformance or underperformance compared to its sector in Stock Insights. This can be found on the stock overview page.