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I thought it might be interesting to note two articles that came out in Forbes. This research has been around for a while, but it's finally getting some expanded press. Recently I was chatting with a few of my friends and I had mentioned an F-Score (this is yet another reason why I dislike some of the stocks I dislike). Well, take a look at the articles in the latest Forbes entitlted 'Google's Bad Grade', by Susan Kithcens and 'F is for Fudging' by Daniel Fisher. They cover some research that was done by Dechow, Ge, Larson and Sloan.
Here's a link to the paper:
Here's a link to the article:
It's a fascinating article and if you hear me say that I dislike a stock partially because it has a bad f-score, you'll know where I got the idea from.
Remember my Apple blog at
So Apple, perhaps has a high F-Score (and remember that this can be a false positive) and I have to think and wonder...
1. Accruals are high? Past academic evidence (Sloan 1996) shows that high accruals can be bad.
2. The company keeps beating earnings by roughly 0.10 to 0.40 for the past year. Perhaps analysts and the market expect it to continue? Logic tells me that it can't continue for long. At some point the analysts will smarten up and choose better EPS estimates, or Apple will have a harder time posting numbers that exceed analysts?
3. The stock gets a high F-score?
4. Prepaid stuff has increased in Apple?
5. My DCF valuation gets a target price of $75
So, putting all that information together... I have to wonder if it'll take a big bath soon? Who knows, Apple went up after the last blogs, so my timing sucks. Who knows, maybe I'm wrong, but I'll stay away from this stock for now.