The Value Line Ranking System
Proven track record since 1965
At Value Line we use unbiased objective research to create products and services that help increase the value of portfolios and help secure the future of our subscribers. The key ingredient — The Value Line Ranking System. Developed by Value Line, the performance ranks and ratings is what allows our clients to position themselves for success.
The Value Line Ranking System for Safety™ measures the total risk of a stock relative to the approximately 1,700 other stocks in The Value Line Investment Survey. It is derived from a stock's Price Stability index and the Financial Strength rating of a company, both shown in the lower right hand corner of each page in Value Line Ratings and Reports. Safety ranks are given on a scale from 1 (Highest) to 5 (Lowest) as follows:
Rank 1 (Highest): These stocks, as a group, are the safest, most stable, and least risky investments relative to the Value Line universe.
Rank 2 (Above Average): These stocks, as a group, are safer and less risky than most.
Rank 3 (Average): These stocks, as a group, are of average risk and safety.
Rank 4 (Below Average): These stocks, as a group, are riskier and less safe than most.
Rank 5 (Lowest): These stocks, as a group, are the riskiest and least safe.
The Value Line Ranking System for Timeliness™ ranks approximately 1,700 stocks relative to each other for price performance during the next six to 12 months. Value Line has utilized this proprietary Ranking System since 1965, assigning ranks from 1 (Highest) to 5 (Lowest). Stocks that receive a Timeliness™ Rank of 1 or 2 are expected to show stronger relative price performance than the remaining stocks in the same time period. At any given time, 100 of the 1,700 stocks are ranked 1 and 300 more ranked 2, giving investors dozens of investment options in the market segments they prefer. The top-ranked stocks for Timeliness™ cannot be expected to outperform the market in every single week but, over a longer period of time, they are predicted to do so as a group, as our actual results demonstrate. The numerical system of ranking is broken down like this:
Rank 1 (Highest): These stocks, as a group, are expected to be the best performers relative to the Value Line universe during the next six to 12 months (100 stocks).
Rank 2 (Above Average): These stocks, as a group, are expected to have better-than-average relative price performance (300 stocks).
Rank 3 (Average): These stocks, as a group, are expected to have relative price performance in line with the Value Line universe (approximately 900 stocks).
Rank 4 (Below Average): These stocks, as a group, are expected to have below-average relative price performance (approximately 300 stocks).
Rank 5 (Lowest): These stocks, as a group, are expected to have the poorest relative price performance (100 stocks).
The Value Line Technical Rank is designed to predict stock price movements over a three to six month time period. In each case, stocks are ranked from 1 to 5, with 1 being the highest ranking. Further, it is based on price movement factors, and should be considered in conjunction with the Timeliness rank.
FINANCIAL STRENGTH GRADE RATINGS
All 1,700 companies covered in The Value Line Investment Survey have a Financial Strength Grade Rating, with ratings ranging from an A++ for the most financially stable firms, to C, for companies that are in serious financial difficulty. There are a number of key factors that determine the Financial Strength rating of a corporation.
The amount of debt on the balance sheet is one of the most important issues. Generally speaking, the more debt a company has on its balance sheet, as a percentage of total capital, the lower the Financial Strength rating. As debt rises, a company’s ability to meet its ongoing obligations, particularly in an unfavorable economic environment, is reduced. On the other hand, a strong balance sheet, with little or no debt, typically means that a corporation has the ability to manage or expand its operations without much difficulty. It also supports a concern’s ability to make dividend payments on a timely basis. Cash on the balance sheet is another important contributor to the rating: in most cases, the more cash on hand, net of debt, the better the rating.
Other important factors that go into a Financial Strength rating include business risk and the level and direction of profits.