Timeliness

What Is Timeliness?

Timeliness is a stock analysis rating system that ranks stocks according to their predicted price performance. It is a proprietary measure from the financial analysis and publishing firm Value Line (VALU), that ranks stocks based on their anticipated performance over the follow six to twelve months. Timeliness assigns a rank of 1 to 5, 1 being the highest-rated.

The Value Line research analysis system (the Value Line Composite Index) a popular index of stock evaluation, and timeliness is arguably the single most important component of their report. The other components in Value Line's research for a stock are known as Safety, beta, and technical categories.

Key Takeaways

  • Timeliness is a stock analysis ratings system that ranks stocks according to their predicted price performance.
  • The Value Line research analysis system is venerated and popular, and timeliness is arguably the single most important component of its report.
  • Value Line's ratings distributions range from one (top-rated 100 Stocks) to five (lowest-rated 100 stocks).
  • Timeliness ranks appear for approximately 1,700 stocks and, along with Safety, inform investors about which stocks to consider.
  • The Value Line Effect is an empirical phenomena whereby stocks rated highly in Timeliness tend to outperform.

Understanding Timeliness

Timeliness is a stock analysis rating scale, developed by Value Line, that ranks stocks according to their expected performance. A rating of one is the highest rating, while a rating of five is the lowest. This rating system is applied to the 1,700-plus stocks followed by Value Line, which accounts for about 90% market capitalization of stocks on the domestic exchanges. The ratings are relative to the other stocks being followed and based on the likely price performance of a stock over a six- to 12-month period.

By way of comparison, the other widely used methodology is a proprietary stock rating system that takes into account earnings changes and price performance to assess potential price performance over a defined time horizon. Common market factors are not measured in this stock rating system. The rating of A is the highest rating, based on earnings and price performance, and a rating of E is the lowest. These ratings are updated daily. Although A and B stocks may yield higher returns compared to C and D stocks, these higher rated stocks tend to be much more volatile.

Value Line introduced its ranking system in 1965.

Timeliness Ratings Methodology

Factors that go into the Value Line timeliness rating system include the 10-year trend of relative earnings and prices, as well as recent earnings and price changes. Unexpected earnings results are also taken into consideration. A computer program generates a forecast of the price change for each stock by drawing up the various elements as they pertain to all the stocks being followed for up to 12 months.

  • Rank 1 represents the 100 stocks with the highest rating that are collectively projected to exhibit optimal performance compared with the rest of the companies rated by Value Line.
  • Rank 2 consists of 300 stocks that, as a group, are anticipated to show better-than-average relative price performance.
  • Rank 3 is made up of 900 stocks that are anticipated to exhibit average relative price performance.
  • Rank 4 consists of 300 stocks that are expected to exhibit below-average price performance.
  • Rank 5 represents the lowest 100 stocks that are forecast to show the poorest price performance compared with the other companies in the ratings system.

When using this method, it is important to consider the volatility of your investment. The rating can be affected by new earnings and changes in price movement. The general market conditions should also be understood by investors since this rating does not acknowledge it and even the best stocks could be affected by adverse market periods.

Timeliness is a Value Line measure that ranks approximately 1,700 stocks relative to each other for price performance during the next six to 12 months.

Timeliness vs. Safety

Value Line's ranking looks at both "timeliness" and "safety". While the Timeliness rank measures probably price performance during the next 12 months, the Safety rank measures the total risk of a stock relative to all others in the Value Line universe. The Safety measure is derived from a stock's Price Stability rank and from the Financial Strength rating of a company. Like Timeliness, Safety is ranked from 1 to 5, 1 being the safest.

What Is the Value Line Effect?

The Value Line Effect is the observation that stocks rated highly by Value Line's ranking (i.e., 1 in Timeliness) tend to outperform stocks ranked poorly. Empirical evidence suggests that the Effect is real.

Which Is Better Morningstar or Value Line?

Both are very good for what they provide. Morningstar is more focused on mutual fund and ETF research and analysis, while Value Line provides insights and analysis into individual stocks or industry sectors.

How Much Does Value Line Cost?

The Value Line survey is available only by paid subscription. The most basic version starts at roughly $600 per year.

Article Sources

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  1. Value Line. "Ranking System."

  2. Porras, David, and Melissa Griswold. "The Value Line enigma revisited." Quarterly Journal of Business and Economics, Vol. 39, No. 4. 2000, Pp. 39-51.

  3. Value Line. "Products."

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