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yuvaltaylor
government contractors

I would like some suggestions for factors that would indicate whether or not a company makes most of its money from government contracts. I would think that eliminating such companies from consideration might be a good thing to do. Any ideas? Thanks!

Yuval Taylor
Product Manager, Portfolio123
invest(igations)

Apr 16, 2019 7:49:47 AM       
Edit 1 times, last edit by yuvaltaylor at Apr 16, 2019 7:50:18 AM
richardmoore
Re: government contractors

I believe this data is available in the 10K but don’t know if data providers supply it. Would love to have it available along with percent of revenue from biggest customer.

Apr 16, 2019 8:20:45 AM       
yuvaltaylor
Re: government contractors

Let's say a government contractor--a company whose revenue comes 100% from the government--shows up as a major buy, the top-ranked stock in your ranking system. What do you do? Government contractors have a revenue source that is very different in nature from a consumer-oriented company, but then again, all companies have something unique about them, so maybe you should just go ahead and buy the stock. Or are government contractors subject to such different considerations than other companies that the normal factors we use to evaluate companies simply don't apply? I'd love some feedback about this.

Yuval Taylor
Product Manager, Portfolio123
invest(igations)

Apr 20, 2019 11:25:59 PM       
InspectorSector
Re: government contractors

You must be aware of at least one such company or you wouldn't have started this thread. Then use the correl( ) to identify stocks with similar market behavior. Not a brilliant approach but a starting point. Some Aerospace & Defense contractors come to mind although it is preferable that the company not be too narrowly focused. You may need to identify multiple stocks in different industries and apply the correl() to each of them individually. Or simply identify specific industries such as defense where defense contractors tend to exist.

Then you would want to screen for a profit margin of less than 10%. If the PM is too high then the majority of revenues probably don't come from the government. You would want the PM to be consistent over several years...

Then you want to screen for the company year end being synchronized with the government's end of the year., possibly one month later And companies should be domiciled in the good ole USA.

I'm not sure if these ideas help, but good luck anyways.
Steve

Apr 21, 2019 6:04:08 AM       
Edit 1 times, last edit by InspectorSector at Apr 21, 2019 6:05:10 AM
yuvaltaylor
Re: government contractors

Interesting ideas there. The company in question is DLHC, but I've had this come up before. The companies with the highest scores of Correl(20,200,getseries("DLHC")) seem to have nothing in common with DLHC. And limiting profit margin to 10% doesn't eliminate many of those.

Yuval Taylor
Product Manager, Portfolio123
invest(igations)

Apr 21, 2019 8:27:44 AM       
InspectorSector
Re: government contractors

I worked for a company that derived most of its revenues from NASA contracts. The year-end was set 1 month after the US government, thus allowing the company to budget/plan for the subsequent year.

As for profits, I don't believe the company can charge more than 10% of profits. If they are aking more, it probably isn't from government contracts.

You may also want to examine DLHCs accounts receivables. There is likely some pattern in how the government pays.

If you are simply looking for a list of companies instead of a P123 algorithm, you could screen for companies whose stock price did poorly during periods of government shutdown. This would result in a lot of manual effort sorting out government contractors. As a final suggestion, try searching on the internet for a list of government contractors. Then use an InList.

Apr 21, 2019 12:33:21 PM       
richardmoore
Re: government contractors

If my screen picks a company with a large government component of business, I just delete it from my universe. There are plenty of other companies to choose from.

Apr 21, 2019 12:52:09 PM       
InspectorSector
Re: government contractors

DLHC has a year-end of Sept 30, same as the US government. Unfortunately, the year-end is listed as N/A for DLHC in the P123 database. Even if it was entered correctly, there is no P123 rule that would allow one to screen via year-end.

In summary, you could filter the universe as follows:

1) Net profit margin < 8% and NPM 5 year average < 8%
2) company year end Sept 30th (in theory if P123 would implement a rule)

These two rules would reduce the set of stocks down to approximately 10%.

Then you could look at accounts receivable, revenues for the Sept 30 quarter as the government has to spend its budget or lose it... I didn't see any 4th qtr spikes there for DLHC but didn't spend a lot of time looking at the financials.

Then you will probably have to restrict your search to specific industries, such as professional services, aerospace and defense, etc.

Steve

Apr 21, 2019 6:09:38 PM       
yuvaltaylor
Re: government contractors

If my screen picks a company with a large government component of business, I just delete it from my universe. There are plenty of other companies to choose from.

I'm getting uneasy about this idea, Richard. Why is a company that makes school buses worse than a company that makes Greyhound buses? Why is a health-care company that services VA hospitals worse than a health-care company that services private hospitals? Why is a company that builds houses for Army barracks worse than a company that builds houses for offshore oil drillers? Why is a company that builds or services public schools worse than a company that builds or services private schools? Maybe I shouldn't be worrying about whether a company is a government contractor or not.

Yuval Taylor
Product Manager, Portfolio123
invest(igations)

Apr 22, 2019 8:04:04 AM       
crastogi
Re: government contractors

I think the issue is that of customer concentration. I was wondering if there is a way to flag/ screen companies which get substantial revenue from one source out

Apr 22, 2019 8:48:59 AM       
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