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Investment Approach:
Risk Model
Channel Trend’s third proprietary model is its Risk Model, which measures and quantifies the risk of a stock based on seven risk factors. These factors are:
- Size risk
- Price variabilty risk
- Financial risk
- Growth stability risk
- Earning predictability risk
- Price forecastability risk
- Price level risk
A risk index for each component factor and an overall Composite Risk index is calculated for each stock.
The Stock Valuator Model then estimates a required rate of return for a stock, based on its level of risk and its risk profile. This required rate of return is used to discount the five-year ahead forecast price of the stock plus dividends to the present. The resulting present value is an estimated current fair value of the stock. The percentage change from the stock’s current actual price to is estimated fair value is used to rank the attractiveness of stocks on the Stock Valuator Model.
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