The GEARS Company Report accompanies each RISK Chart and is written by the computer to articulate the rationale behind making a decision in the context of the growth and share price performance record of the company illustrated in the RISK Chart. The principle components of the decision, both positive and negative, are listed in the summary section of the report without any reference to their relative importance.

The header line refers to the company name, the ticker symbol, the closing share price, when the report was written, and the current investment decision being proposed. BUY and SELL decisions are obvious but NEUTRAL or "make no decision now" can be more confusing. Since we wish to buy stocks that are depressed and sell stocks that are extended, the location of the share price relative to its standard range of volatility is an important input to the decision. A stock might be ranked neutral with good fundamentals but extended share price. If the share price were to become depressed, GEARS would write a new company report articulating a buy decision. A NEUTRAL-BOUGHT rating means that the stock was recommended as a BUY in the past and now makes a good portfolio holding but not a good current buy decision. NEUTRAL-SOLD means that the stock has been sold by GEARS in the past and should not be in portfolios. If the stock were to become extended, GEARS would write a new company report articulating a SELL decision.

The first paragraph in the body of the report refers to the top two charts in the RISK chart set detailing the history of the share price performance of the company and the valuation record.

GEARS marks the most recent inflection point in the relative price performance record of the stock and measures the change in the stock price relative to the market since that time. Whether the stock has performed well or poorly over time is not a predictor of the future share price trend. GEARS will identify the important growth variables that are driving the share price trend and focus on any evidence of a change in those drivers.

The second paragraph in the report details the date and the rationale behind the last change in opinion. That focuses attention on the growth drivers that changes direction at that time. By watching for those variables to change direction again will help to buy stocks when the price is depressed and fundamentals are recovering or sell stocks when the price is extended and fundamentals are deteriorating. The GEARS BUY and SELL record is marked on the relative investment return chart. Decisions are marked at the end of the month during which the decision was made.

The third paragraph in the report refers to the third RISK chart and details the current level and direction of sales growth. The sales growth test measures the historical pattern and indicates whether the recent change in the sales growth rate is meaningful for that company. For many companies, changing receivables are a reliable forecaster of changing sales growth. If there is a pattern between sales growth and receivables historically, the GEARS company report will mention that. Also, if the direction of the share price has been related to the direction of the sales growth rate GEARS will mention that. If sales growth is up, receivables are down predicting a future sales growth advance, and the investment performance of the shares has been closely related to the direction of sales growth, GEARS might suggest a BUY decision based on sales growth alone.

The fourth paragraph details the trends in margins and costs starting with the gross margin. Gross margin falling is usually a negative development and the share price is often very sensitive to the direction of the gross margin. For many companies, the direction of inventories is a useful forecaster of the margin. If a change in the direction of the inventories have a reliable effect on the share price historically, GEARS will refer to that effect. Gears will also detail the degree of historical relationship between the margins and the share price. GEARS measures the direction of costs and their effect on the EBITDA margin. The most powerfully accelerating companies have rising sales growth, rising gross margins and falling costs. That is a leveraged acceleration and is often associated with a rising share price.

If the shares are depressed or extended relative to their standard share price volatility range, the company report will refer to that and indicate the effect on the decision. A depressed stock is more likely to be a buy but only if fundamentals are improving. Similarly an extended stock is more eligible as a sell candidate, but only if the fundamentals are deteriorating.

The last paragraph details the volatility history of the stock and refers to the degree of risk in the investment. Understanding and control of investment risk is an important part of the GEARS service.

A membership at GEARS is available for a monthly subscription fee of $49.95. Access to GEARS company reports and stock decision ideas by industry, sector and investing style are available in the GEARS store on a pay-per-view basis at $5.00 per GEARS company report.

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