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Fundamentals analysis of historical Gappers

Simple Question:


If we quantitatively give a score to all the small-cap runners. The highest score means the stock is really bad fundamentally, will we find an edge?


We tested some metrics listed. The table below shows some fundamental data for small caps. Please note that we cannot share fundamental values and candles prices due to our data provider policy. Therefore the stocks below are anonymised but not cherry-picked!.



Table 1: Sample Fundamental scoring of daily gappers.


Where:

· FA Score: The fundamental score obtained by summing the points

· NWC: Net working capita - 0.5 point if negative

· Ret: Retained Earning - 0.5 point if larger than market cap

· MarCap: Market cap - 0.5 point if < $100M

· Insti: Institutional ownership - 0.5 point if < 20%

· Insid: Institutional ownership -0.5 point if < 20%

· EPS: Earnings per share - 1 point if negative

· Bv: Book value – 0.5 point if negative

· Time left: Cash Burn – 1 point if less than 3 months left



What is the probability of the stock closing red the crappier it is?


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