MicroMonitor

MicroMonitor is a program for stock analysis. MicroMonitor is used in large investment banks such as HSBC Securities. MicroMonitor consists of three stock analysis tools:

• VFO
• Earnings Momentum, and
• Price Momentum

What is VFO in stock analysis?

VFO utilizes the concept of price having 2 elements:

• VEE (the current value of equity derived from EPS forecasts or Earnings per share forecasts), and
• VFO (the future value of equity)

Each stock price can be broken down into its VEE element and its VFO element. If the VEE is low as a percentage of stock price, then VFO is large and the market has priced in future gains to the current share price. Stocks with this property are considered bad investments because investors would be paying for the unseen future value.

What is Price Momentum?

All stock prices are thought to follow the following rate of change diagram.

The diagram above shows that at some stage each stock price will change fast similar to accelerating a car from, for example, 0mph to say 100 mph. The stock price will then stay at a constant rate of change similar to a car driver keeping the car speed at 100 mph, then finally the price will have a negative rate of change similar to a car driver reducing his speed from 100 mph to 0mph again.

Stocks with largest positive rate of change are considered the best investments whereas stocks with negative rate of change are considered poor investments. Stocks within local universe, for example in a country, there are 21 stocks that are ranked by the rate of change and the best being the stock with the most positive rate of change. The ranked scale of 1 to 21 is then projected to a scale of 1 to 100 and results presented in MicroMonitor.

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