Quality at a Discount — Signal Methodology

Signal Types & Backtest Results

Primary Accumulate

A-Rated + Valuation Discount + Revenue Growth >10%

Our strongest signal: companies rated A or higher by FMP, priced below 60% of their 3-year valuation median, with revenue growth exceeding 10%. This filters out value traps by requiring active business momentum.

+6.2%

6-Month Alpha

65.5%

Beat SPY Rate

Total Signals

75.9%

Positive Return Rate

Strong Accumulate

A-Rated + Deep Discount + RSI < 35

Rare, high-conviction signal: same quality and valuation criteria, plus RSI below 35 indicating short-term oversold conditions. Few signals (8 in our backtest) but the highest alpha when they fire.

+8.0%

6-Month Alpha

62.5%

Beat SPY Rate

Total Signals

75.0%

Positive Return Rate

Trim / Reduce

Valuation > 130% of 3-Year Median

When a stock is priced above 130% of its 3-year valuation median, our backtest shows it underperforms SPY going forward. This validates the discipline of trimming overvalued positions rather than holding through mean reversion.

−4.5%

6-Month Alpha

44.9%

Beat SPY Rate

147

Total Signals

7.9%

SPY Median Return

Methodology

What is Quality at a Discount? We identify fundamentally strong businesses (A-rated by FMP) that are trading below their historical valuation median — and layer on growth and timing filters to separate real opportunities from value traps.

Quality gate: FMP rating A- or higher (score ≥ 4), positive analyst consensus (≥ 60% buy), positive revenue growth.
Valuation signal: Current price-to-sales or price-to-earnings below 60% of the 3-year median — a 40%+ discount to the stock's own history.
Growth filter (primary accumulate): Revenue growth > 10% ensures the business is expanding, not declining into cheapness.
RSI timing (strong buy): RSI below 35 adds a short-term timing layer for high-conviction accumulation points.
Trim signal: Valuation above 130% of median flags overextended positions for rebalancing.

Backtested against 54 S&P 500 stocks from 2021-11-30 to 2025-08-29 with 6-month, 1-year, and 2-year forward return windows. Each signal is compared to SPY over the same period.

Past performance does not guarantee future results. Backtest results may not reflect future market conditions.