What We Do

Gradient Analytics is an equity research firm focused on forensic accounting analysis & consulting for short idea generation and vetting of long candidates.

Since 2002, we have served the buy-side community of institutional investment managers and hedge funds by publishing comprehensive reports on short ideas focused on both domestic (US) and international companies based on our proprietary Earnings Quality Analytics and Equity Incentive Analytics (anomalous insider trading activity) processes. In addition, for quants and data scientists, we offer a quantitative model called the Earnings Quality Rank (EQR), which is also useful to fundamental analysts for screening, confirmation, and idea generation.

With our expertise in the critical examination of financial statements, Gradient can be quite helpful in supplementing your internal research process and portfolio management. Our clientele comprises a diverse mix ranging from large long-only institutions to small long/short hedge funds.

How We Do It

Gradient's analyst team evaluates earnings quality/sustainability and signs of financial engineering (or managing of reported earnings), as well as anomalous insider selling, corporate governance, and audit & control. We also discuss the underlying fundamental drivers that might make these issues persist or worsen, and potential near-term triggers for stock price under-performance going forward.

We publish in-depth reports on selected companies in the US, Canada, Western Europe and developed markets in Asia, across small, mid, and large caps, and focused mainly on Technology, Healthcare, Consumer, and Industrial sectors, plus an occasional Financial. All our opinions are negative, as you would expect from a forensic accounting service, so they are intended as candidates for short positions.

Alerts, Research Notes, and Snapshots. Over the course of a year, our goal is to publish around 15-20 domestic (US) coverage-initiation Alerts and perhaps 3-5 international Alerts, on which we continue to publish follow-up Research Notes (generally after an earnings release) until issuing a final Discontinuation report (when the concerns are either mitigated or baked into the valuation). In addition, we write perhaps 6-8 brief, one-time Snapshot reports.

Clients are notified by email alert on all new publications, and they can choose to access reports through platforms like Bloomberg and FactSet. Clients also are welcome to request cursory bespoke reviews of names of particular interest to you (either long or short), which we are happy to do as a complimentary service as time allows, or in greater detail for an additional fee commensurate with the scope of the analysis.

EQR for Quants. Gradient’s Earnings Quality Rank (EQR) is a pure accounting-based risk assessment factor that employs a relative-scoring engine to assess earnings quality versus peers in similar industries and then rolls up industry-level rankings into a universe-wide aggregate rank. Our analyst team uses it to source potential short ideas. Moreover, EQR is licensed to a number of long/short hedge funds and to the First Trust LongShort ETF (FTLS).

What Next?

If you would like to see a sample research report, please send a request to sales@gradientanalytics.com. Also, we would be happy to discuss over the phone Gradient’s research process, active coverage, and Greatest Concerns List, as well as and the various ways you might leverage our expertise. We are flexible to tailor subscription options and terms to best meet your needs and constraints.

In any case, we invite you to fill in the sign-up box to be added to our email distribution list for periodic research updates and “Gradient Insights” articles, which are thought pieces based on our expertise in earnings quality and anomalous insider behavior.

To Summarize

Our fundamental and quantitative research products include:

  1. Gradient Alert Service. This is our flagship service. Clients subscribe for short idea generation and for risk management of long positions. Our analyst team writes in-depth "Alerts," updates, and brief “Snapshot” reports on selected companies in the US and International, plus periodic commentaries on various topics labeled “Gradient Insights.” We target publication of 15-20 Alerts each year (including 3-5 international names), plus 8-10 Snapshots. We also offer bespoke vetting of long or short positions or new candidates, and as a free perk for subscribers, clients are welcome to request cursory bespoke reviews of any company of interest.
  2. Gradient Consulting. Our analyst team reviews and vets individual companies or stock portfolios (long or short). This might entail quarterly Portfolio Assessments or ad hoc in-depth bespoke reviews on any company globally. Deliverables are tailored to the client’s needs.
  3. Earnings Quality Rank (EQR). This is a pure accounting-based, quantitative weekly ranking (primarily focused on working capital and cash flow factors) of over 3,000 US-listed stocks and ADRs for fundamental screening or quant modeling. Primarily focused on working capital and cash flow factors, it employs a relative-scoring engine to assess earnings quality versus peers in similar industries and then rolls up industry-level rankings into a universe-wide aggregate rank. It was developed jointly between Gradient and parent company Sabrient Systems, a quantitative equity research firm. EQR has gained traction with both fundamental analysts (for screening, confirmation, or risk assessment) and quant analysts (as an orthogonal alpha-factor).

We welcome your comments, questions, requests, and suggestions. In any case, please follow us on Twitter @earningsquality, where we regularly post timely insights.