Disruptor selection and ranking
About disruptors
Disruptor companies are companies that have introduced new business models and changed or entirely displaced established industries in a significant way. Prominent examples are Amazon, Google, Netflix and many others. Identifying such companies at early stages is considered very difficult and often quite risky as by definition their business model is out of the ordinary and there is no certainty that such model will work.
Apart from the inherent risk in this style of investing, fundamentals are usually poor and one cannot use conventional metrics to predict future growth.
Hence, as a first step for our analysis we apply relaxed metrics – criteria, in order to potentially capture these companies with strong growth that have the potential to disrupt their established industries in the future, without limiting the universe of companies with strict criteria.
Our approach
We deploy a three step approach using relaxed fundamental and market criteria, inclusive keywords and weighted ranking. More specifically:
Relaxed fundamentals
- Companies in Europe, US and Canada
- Revenue Growth (1 year) > 50%
- Market cap > 500 m. USD
- Daily dollar Volume > 2 m. USD
- Net Debt/ Equity < 100%
- Sharpe Ratio > 0
Inclusive keywords
Since disruptors is a qualitative concept not easily quantified we apply a qualitative technique in the next step of our analysis, using inclusive keywords in order to identify those companies that fulfill the relaxed criteria and also have a minimum of one of these keywords in their extended description. Examples: ‘Digital’, ‘Blockchain’, ‘Defi’, ‘Cloud’, ‘Crypto’, ‘Fintech’ and many more.
Ranking
We rank the resulting set of companies based on the following weighting:
| Metric | Weight |
|---|---|
| Debt (Net Debt / Equity) | 30% |
| Sharpe Ratio | 30% |
| Earnings | 25% |
| Market Cap | 15% |
The weighting is heuristic, based on the notion that debt levels and price action are more important than current earnings and market cap.
We believe that this methodology will shed some light to our clients that are interested to invest in this style of investing.
The monthly ranked disruptors stock list can be found here.