Joseph Piotroski
F-Score
Joseph Piotroski developed the F-Score as an academic researcher at the University of Chicago. His insight was that most high book-to-market (value) stocks are cheap for good reasons, but a simple 9-point scoring system based on profitability, leverage, and operating efficiency can identify the winners. The F-Score is best used as a filter on top of already-cheap stocks.
Valuation Method
Filtered Book Value
Uses book value per share as intrinsic value for companies passing the F-Score (≥7/9). The premise: high F-Score stocks trading below book value represent deep value opportunities.
Checklist (9 Criteria)
| # | Criterion | Metric | Threshold | Data Source |
|---|---|---|---|---|
| 1 | ROA | Return on Assets | ROA > 0 (current year) | Net Income / Total Assets |
| 2 | Operating Cash Flow | CFO | CFO > 0 (current year) | Cash Flow Statement: CFO |
| 3 | ROA Change | Year-over-year ROA | ROA(current) > ROA(prior) | Year-over-year comparison |
| 4 | Accruals (Earnings Quality) | CFO/Total Assets vs. ROA | CFO/Total Assets > ROA | Quality of earnings check |
| 5 | Leverage Change | Long-term Debt / Avg Total Assets | Decreased year-over-year | Balance Sheet |
| 6 | Current Ratio Change | Current Ratio | Increased year-over-year | Balance Sheet |
| 7 | Share Dilution | Shares Outstanding | No new shares issued | Shares Outstanding, YoY |
| 8 | Gross Margin Change | Gross Margin | Improved year-over-year | Income Statement |
| 9 | Asset Turnover Change | Revenue / Total Assets | Improved year-over-year | Income Statement + Balance Sheet |
Intrinsic Value Method
Piotroski-Filtered Book Value
Book Value per Share (for stocks scoring F-Score 8-9)Not a standalone valuation method. The F-Score is used as a filter to identify which low price-to-book stocks are financially healthy. Stocks with high F-Scores (8-9) among low P/B stocks tend to significantly outperform.
Verdict Logic
Score 0-9. Each signal that passes adds 1 point. F-Score 8-9 = Strong (BUY signal among cheap stocks). F-Score 0-2 = Weak (likely value trap). Best used as a filter on stocks with low P/B ratios.
What Would Joseph Piotroski Buy Today?
Sources
Value Investing: The Use of Historical Financial Statement Information to Separate Winners from Losers
2000Joseph D. Piotroski
The original academic paper published in the Journal of Accounting Research. Demonstrates that a simple 9-signal scoring system applied to high book-to-market stocks generates a 23% annual return spread between high and low F-Score portfolios.