Screening for turnaround stocks

In a recent discussion with other Stockopedia writers, Megan mentioned that Value-Momentum had been the best-performing strategy in the Stockopedia database. I was initially a bit confused. We typically refer to such stocks as Turnarounds. However, when I look at the long-term performance of the Turnaround StockRank Style stocks, they aren’t particularly great:

The clue to this mystery is in how few Turnaround Stocks there are:

What is happening is that this StockRank Style is excluding SuperStocks, those that also have a high Quality Rank. When we ignore the Quality Rank and just look at the highest combined VM Rank the results are completely different:

This makes sense. Turnaround investors will be looking for cheap companies that have started to show signs of outperformance but that the market hasn’t fully priced in that yet. Such companies may have yet to show high returns on capital, and improving prospects may not yet have appeared in all the financial metrics. However, there is no reason to exclude companies where this has happened (and hence, the Quality Rank is...