CompanyGraph
A beaten-down stock is a price condition, not an investment thesis. Use the drawdown to build a research queue, then test whether cash generation, revenue quality, balance-sheet capacity, and current operations still support the business.
What counts as a beaten-down stock?
A drawdown measures how far the current price sits below a prior high. It does not say the stock is cheap, the decline is excessive, or recovery has begun. Those conclusions require valuation and business evidence.
This distinction separates drawdown screening from value screening. A stock can fall 40% and remain expensive if its prior valuation was extreme. Another can trade near its high while being inexpensive relative to cash flow. The drawdown tells you what price did; valuation tells you what the current price implies.
What does the CompanyGraph drawdown screen require?
Drawdown With OCF Coverage And Growth Consistency requires all three observations to fire:
- the current weekly close is at least 35% below the highest weekly close in the preceding 104 weeks;
- operating cash flow is at least 1.4 times positive net income in the latest annual period; and
- an eight-year revenue-growth consistency composite—median growth, share of positive years, and stability—ranks in the upper range against industry peers.
A match identifies a deep recent drawdown alongside one latest-year cash-conversion ratio and one long-run revenue-growth composite. It does not establish that all fundamentals are intact, that the stock is undervalued, or that price will recover.
Drawdown With OCF Coverage And Growth Consistency
Current price is in a significant drawdown from peak while OCF exceeds net income (latest annual) and the revenue growth-consistency composite reads elevated
How do you test whether the fundamentals are still strong?
Start with the most recent data after the annual period used by the screen. Compare interim revenue, gross profit, operating income, operating cash, orders, backlog, customers, and guidance. A company can pass on last year's accounts even after current conditions changed.
Reconcile net income to operating cash under IAS 7. OCF above net income can reflect healthy collection, but also depreciation, stock compensation, provisions, or a temporary working-capital release. Identify which accounts produced the ratio and whether they can repeat.
Then test the eight-year revenue record. Separate acquisitions, disposals, currency, price, and volume. Consistent consolidated growth can hide a weakening core if purchased businesses or one segment offset deterioration elsewhere.
Why can the share price fall before statements deteriorate?
Prices incorporate expectations and trading pressure continuously; annual statements record completed periods. Investors may be reacting to customer loss, product delays, regulation, litigation, refinancing, cyclicality, channel data, or management guidance that has not yet changed a full-year statement.
The SEC's guide to reading a Form 10-K points investors to the business description, risk factors, MD&A, audited statements, notes, contractual obligations, and critical judgments. After a drawdown match, compare those disclosures with newer current reports, earnings calls, and interim filings.
Do not assume the market knows more, either. Forced selling, index changes, sector rotation, liquidity, tax positioning, and risk-off moves can move price without changing company economics. The research task is to find evidence for the cause, not choose a comforting story.
Which segment and customer risks can consolidated data hide?
Consolidated revenue and cash flow can look stable while a high-margin segment declines, a new low-margin activity grows, or one customer prepares to leave. IFRS 8 requires information designed to help users evaluate different business activities and economic environments, including products, geographies, and major customers.
Review segment revenue, profit, assets, capex, and reconciliations. Identify which segment funds cash generation and which carries the valuation. Test customer concentration, contract duration, renewal, volume, pricing, and receivables. A stable group total can be a poor guide if the valuable part is deteriorating.
How do valuation and a catalyst fit the screen?
A drawdown creates a lower price, not automatically a margin of safety. Revalue the company using normalized cash flow, conservative reinvestment, debt, leases, pensions, dilution, and segment-specific risks. Compare the implied expectations with the evidence, not with the old share price.
A catalyst is not required for value to exist, but it affects timing and realization. Results, debt reduction, contract renewal, a completed investment cycle, asset separation, or clearer disclosure can change expectations. Each catalyst needs authority, feasibility, cash, and timing; a vague hope that price “mean reverts” is not a mechanism.
What due diligence should follow a drawdown match?
- Date the screen inputs. Record the price week, annual OCF/NI period, and eight-year revenue window.
- Read forward. Review every interim and current filing after the annual statement for new operating and financing evidence.
- Rebuild cash conversion. Separate recurring operating cash from working capital and non-cash adjustments.
- Disaggregate revenue. Test organic, acquired, segment, geographic, and customer-level changes.
- Map balance-sheet risk. Include maturities, covenants, restricted cash, leases, pensions, and required capex.
- Value the current business. Use current normalized economics and downside cases rather than anchoring to the peak price.
- Write the disconfirmation case. State what evidence would show that the market's negative view was justified.
If the screen returns no companies, it means no current match was found in the evaluated preview universe. Preview coverage may be incomplete, and strong companies may miss the 35% drawdown, 1.4x cash-conversion, or eight-year-history requirements.
What the screen cannot establish
It cannot identify an unjustified sell-off, predict recovery, or certify broad fundamental strength. It records one price position and two backward-looking readings. The investment case begins with the match; it does not end there.