Benchmarking

DeMarche has done important work regarding benchmarking. We separate benchmarking companies from stock benchmarking. The important variables in this research stem from our Factor Model research, Independent Peer Groups & Clones, and our migration method.

Migration

Over the past decade, DeMarche has been studying the concept of company change as an added value from our proprietary factor model. We used our factor model to zero in on nine "fundamental" factors that characterize companies in terms of growth and risk management factors. Stock price is not used in the analysis. We then developed a scoring and ranking system that tracks how the 3,000 largest companies "move" or "migrate" relative to one another with respect to achieving significant growth, while simultaneously mitigating risk. The system scores companies in nine locations on a diagonal axis, as shown in Exhibit 1. Essentially, small cap value companies (location 1, the bottom right corner) can become high quality growth stocks (location 9, upper left-hand corner) in two ways, by maintaining or continuing above average growth and/or by lowering fundamental risk factors.

Exhibit 2 shows some of the key findings of our study of company migration. It depicts small cap value companies (location 1 on the migration axis) that stayed the same or moved eight other positions along the diagonal axis of migration three years later. The horizontal axis is stock performance during the three-year periods of migration. As can easily be seen, companies that "stayed" small cap value; i.e., stayed in lower locations, during three-year periods from 1982 to 2002 did not perform very well. Conversely, companies that were able to "migrate" to higher quality locations showed uniformly increasing return performance on average.

DeMarche's migration metric offers a comprehensive and efficient way of understanding how all of a company's key financial characteristics are moving together in time to illuminate how the company is evolving through its life cycle.

DeMarche has listed the Best 100 Companies in terms of migration rank and the 100 Most Improved or most migrating companies along with selection criteria.