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Hello Alan (alevine)

Here are some of the screening criteria from your list that I think would be helpful to construct an early GG screen:

Timeliness Rank
Industry
Market Cap $ (Mil)
Gross Margin
Price/Sales Ratio
Sales Growth 1-Year
Sales Growth 5-Year
Relative Strength 3 Months (? 1 year)
Proj Sales Growth Rate
Proj Cash Flow Growth Rate
Proj EPS Growth Rate
Growth Persistence

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BB's ideas for an early GG screen:
http://boards.fool.com/Message.asp?mid=13190692
A potential GG company must meet these criteria:
1. Discontinuous innovation
2. Proprietary open architecture
3. High barriers to entry
4. High switching costs
5. Strong value chain formation
6. Tornado market exists or foreseeable
I would suggest at least the basics of:
o four letter ticker symbols only
o projected sales growth rate
o Sales Growth 1-Year
o industry/segments must be high technology only
along with any combination that might fit your knowledge. Early candidates will have N/A for the P/E ratios, then once the profits start to come in these P/E's will be very high as compared to a more mature technology company. Perhaps there is some way to screen for that, I don't know.

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Let me go through these screening criteria and tie them in to early GG characteristics.

Timeliness Rank

I don't know if this fits into the GG equation, but a timeliness rank of <3 seems to be a good screening tool. This one can always be dropped if it fails to recognize early GG companies of the past when doing a backtest.

Industry
High tech, just as BB alluded to, GG is a game played onlky in tech, so possible industry segments would include:
Computer Hardware/Software, Electronics, Microprocessors, Wireless, Network Hardware/Software, Internet Software and Infrastrucutre and Enterprise Software.

I don't have the list of industries available, but it would be pretty easy to decide what industries to consider.

Market Cap $ (Mil)

Since we are looking for early Gorillas/Kings, maybe we can set the upper limit of Market Cap at $20 Billion. This can be adjusted lower or higher depending on the results of backtesting.

Gross Margin

I believe we are looking for companies with light business models, compatible with an open proprietary architecture, not ones selling commodity products, therefore I believe that high Gross Margins are essential. Maybe we can set Gross Margins above 40% as a goal.

Price/Sales Ratio

As Moore likes to point out, GG companies will have high Price/Sales ratios. This indicates that the market perceives that these companies are growing quickly and have high barriers to entry. Maybe we can screen for companies with Price/Sales greater than 10 (if these seems too low, amybe we can up it to 20).

Sales Growth 1-Year
Sales Growth 5-Year

Slaes growth for 1 year should be greater than 80% (100% for the tornado purists), if available the 5-year Sales Growth should be greater than 50% (Am I being too picky here?)

Relative Strength 3 Months (? 1 year)

High relative strength indicates momentum and that the stock has been "discovered" by Wall Street. RS>80 for 1 year seems reasonable.

Proj Sales Growth Rate

We want companies early in nthe growth curve, so this number should be at least 40%. I'm sure a lot of the next gen networkers will be growing at 50-100% year over year for the next 5-10 years.

Proj Cash Flow Growth Rate
Proj EPS Growth Rate

This one depends on how accurate the forcast is for these type of companies. I would say we screen for these two criteria to be over 20%, but if the forecast is flawed these two criteria can be dropped. Gorillas and Kings should have amazing cash flow and EPS growth rates going into the future (that's why we invest in these companies – duh!)

Growth Persistence

I'm not exactly sure what this is, but it looks good. We do want companies with sustainable growth.

Now the criteria for GG that is harder to measure, Discontinuous innovation, Proprietary open architecture and Strong value chain formation needs to be measured individually. I don't really know if there are any screen criteria that could possibly measure this.

Now, some sell rule ideas:
Sales growth projected falls to below 20%.
Market cap climbs above $100 billion (and Gorilla status has not been confirmed).
Timeliness Ranking goes to 4 or 5.
Price to Sales Ratio falls to below 10.

Any thoughts on the above?

I'm looking forward to the backtest results.

-xerohype
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