Growth Stock Screener using Rule #1 metrics

Phil Town is an investor, speaker, and author of the book “Rule #1”. His investment approach is heavily influenced by Warren Buffett and Benjamin Graham’s value investing philosophy. Town emphasizes the importance of only investing in businesses that one understands and which have predictable and proven outcomes. Phil Town’s “Rule #1” stands out for its simplicity and effectiveness for finding growth stocks at reasonable prices.

We have developed a Growth Stock Screener which is based on Phil Town’s investment philosophy. Our Growth Stock Screener has up-to-date data for more than 25,000 global stocks, spanning the United States, India, Europe, Canada, Korea, Australia, Japan, China and more. Click here to explore our expansive country and exchange coverage. Scroll down to our Growth Stock Screener Dashboard to begin your journey in identifying promising growth stocks both domestically and internationally.

What is Rule #1?

Rule #1 comes from the famous statement from Warren Buffett:

“Rule No. 1: Never lose money.

Rule No. 2: Never forget rule No. 1.”

Phil Town took this wisdom to heart and built an entire investment strategy around it.

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Core Principles of Rule #1 Investing

Buy Wonderful Businesses: Much like Buffett, Phil Town emphasizes investing in great businesses. These are businesses that have a proven track record, a competitive advantage (or moat), and excellent leadership. It’s not just about the stock; it’s about the underlying business.
Pay a Margin of Safety Price: Never pay full price. The goal is to buy these wonderful businesses when they are on sale. This means determining the business’s intrinsic value and then waiting until it’s available at a significant discount, providing a margin of safety.
Use the 4M’s: Phil Town breaks down his approach into four M’s:
– Meaning: Understand the business. It’s crucial to invest in businesses that you understand and are passionate about.
– Moat: The business should have a competitive advantage, something that sets it apart and protects it from competitors.
– Management: A great business is run by great leaders. You want to ensure that the management team is competent, has integrity, and is shareholder-friendly.
– Margin of Safety: As mentioned, always aim to buy at a discount to the business’s intrinsic value.
Be Patient: Rule #1 investing requires patience. Sometimes, it means waiting for the right opportunity for a long time. But the philosophy believes that it’s better to wait for the perfect pitch than to swing at everything.

Key Metrics used in Rule #1 Investing

Town employs a series of quantitative metrics to screen for stocks that fit his investment criteria. We have used these metrics in our Growth Stock Screener below. The essential metrics Phil Town emphasizes are:

Return on Invested Capital (ROIC): Phil Town seeks out businesses that have consistently maintained an ROIC of greater than 10% over the past ten years. This indicates the efficiency at which a business converts its invested capital into profits
Equity Growth Rate (Book Value Growth): For Phil Town, a business should have achieved an average equity (or book value) growth rate of at least 10% annually over the preceding ten years.
Earnings Growth Rate: Businesses should have demonstrated an annual earnings growth rate of a minimum of 10% over the last decade.
Sales Growth Rate: A consistent sales or revenue growth rate of at least 10% per year over the past ten years is sought after, indicating a solid market demand for the business’s products or services.
Free Cash Flow (FCF) Growth Rate: Phil Town emphasizes a consistently positive FCF. Moreover, he seeks businesses that have grown their FCF at an average rate of 10% or more annually over the past ten years, signifying sound financial health.
Debt: Phil Town uses the Long-Term Debt to Free Cash Flow ratio to assess a business’s leverage. He prefers businesses that could theoretically pay off their entire long-term debt with their current free cash flow in less than 3-4 years.
Price-to-Earnings Growth (PEG) Ratio: Phil Town looks beyond the conventional P/E ratio, which measures the current price of a stock against its earnings. Instead, he places significant value on the PEG ratio. This metric divides the P/E ratio by the business’s earnings growth rate over the last 10 years. In incorporating past earnings growth, the PEG ratio offers a broader perspective, considering both present valuation and earnings trajectory (as an indicator of future growth). Town seeks businesses with a PEG ratio below 1, interpreting such a value as an indication that the stock might be undervalued relative to its earnings performance and growth.
Margin of Safety (MOS) Price: Phil Town calculates a business’s ‘sticker price’ or intrinsic value based on anticipated future cash flows and his desired investment return. He then aims to purchase the stock at a price that’s at least 50% below this sticker price. He refers to this significant discount as the Margin of Safety, providing an added layer of protection against potential overvaluation or unforeseen adverse events. The Margin of Safety Price can be calculated using our Intrinsic Value Calculator.

In addition to these quantitative parameters, Phil Town also stresses the weight of qualitative attributes. Understanding the business thoroughly, ensuring it possesses a durable competitive advantage or moat, and verifying it’s guided by competent and ethical management are also key elements of his investment approach.

How to use the Growth Stock Screener

Growth Stock Screener Demo: Find High-Growth Stocks Quickly

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Click on the video and expand to full screen to view a demo of the Growth Stock Screener.

Detailed instructions are also provided below the dashboard.

If you need a refresher on any of the financial metrics used, our Stock Investing Glossary is just a click away.

Our Growth Stock Screener has the default settings below. You may adjust these settings in the screener to suit your specific criteria.

Screens using growth rates over the last 10 years. There is the option to screen using growth rates over the last 5 years, if you wish to focus more on recent performance.
ROIC, Equity growth, Revenue growth, EPS (Earnings Per Share) growth and Free Cash Flow growth over the selected period must all be greater than 10% p.a.
Long Term Debt to Free Cash Flow Ratio < 3
Price-to-Earnings Growth (PEG) Ratio < 1
Discount to Fair Value using historical free cash flow growth (growth capped at 20% p.a., discount rate = 12%, terminal P/FCF = 15) > 50%
Discount to Fair Value using historical net profit growth (growth capped at 20% p.a., discount rate = 12%, terminal P/E = 15) > 50%

To better understand the meaning of these financial metrics, refer to our Stock Investment Glossary.

Please suggest improvements to this dashboard by providing feedback in the form on the Contact page.

Detailed instructions for the Growth Stock Screener

By default, stocks for exchanges in ‘All’ regions are displayed initially. You may select a specific region using the ‘Exchange Region’ drop down list. Note that clicking on ‘Select all’ in the drop down list can also deselect all.
Select from the dropdown menus and move the circular sliders to apply your desired criteria.
By default, the stocks are sorted in descending order of market capitalisation (USD). However you may sort the stocks based on another metric by clicking on the relevant column header.
All metrics in the table are current or based on trailing twelve months (ttm).
Obtain more information for a particular business by selecting Stock Metrics in the menu.
Estimate the fair value of a particular business by selecting Intrinsic Value Calculator in the menu.
The dashboard is best viewed on a desktop device. For the best mobile phone experience, view the dashboard using landscape orientation.

The accuracy of the data in this website is not guaranteed and it is highly recommended that you perform your own due diligence before making an investment decision by directly reviewing the business’s annual report and accompanying financial statements.

Why Does Rule #1 Investing Work?

The beauty of Rule #1 investing is in its combination of qualitative and quantitative analyses. By focusing on the quality of the business (Meaning, Moat, and Management) and then ensuring that you’re paying the right price (Margin of Safety), you drastically reduce the risk of permanent loss of capital. This dual focus helps investors maximize returns while minimizing risks.

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