Performance, Risk and Valuation
Stern Stewart Co.
Summary of the PRVit Model. Abstract
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Stern Stewart & Co.
The PRVit system is a proprietary Performance, Risk, and Valuation investment technology system by Stem Stewart.
It is a purely quantitative, EVA-based stock rating and investment screening system. PRVit is derived from a cross-sectional and time series statistical analysis of the financial results of all Russell 3000 companies that is updated monthly. It shows how a company compares to its sector peers and the market universe in terms of its operating performance, risk, and key valuation multiples.
PRVit brings together the three factors of:
• risk, and
and develops an overall index of investment timeliness by computing a company's risk adjusted performance potential per unit of valuation (or in symbols, by taking its P score less its R score and dividing by its V score).
In effect, the PRVit score computes a company's intrinsic MVA in the numerator (based on its risk-adjusted potential to drive profitable EVA growth), and divides that by a representation of its actual MVA in the denominator.
It effectively compares the performance, risk and valuation tradeoffs evident within each company against the market universe of such tradeoffs to
position a company on a relative valuation scale.
The resulting overall PRVit-score -
which runs from 0 to 100 - indicates the company's relative
attractiveness as compared to the Russell 3000. A PRVit score of 50 thus
indicates a fair balance among all three factors, and a seeming parity
between the firm's intrinsic value and its traded value, given
current market conditions. A high score on the other hand - in the range of 67 to 100 - indicates an investor can acquire a considerable amount of valuable performance potential for a reasonable valuation price, and thus the stock may have stored up the potential to outperform the market if past trends are sustained. A low score, say from 0 to 33, suggests the company's market value is aggressive compared to past performance trends, and without a good reason to expect a significant reversal an investor should avoid buying the shares as such companies are deemed likely to under-perform the market.
At the heart of PRVit are 12 carefully selected, precisely computed and exhaustively tested indicators that collectively depict the essence of corporate performance, risk, and valuation as in the figure:
Compare with PRVit: EVA | CFROI | MVA | RAROC | Economic Margin
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