Hudson Labs risk scores are machine learned, not additive, and assess the likelihood of high impact downside outcomes related to earnings quality and fraud. Risk scores range from 1 to 100 (low risk to high risk).
Scores above 70 are considered High Risk. Fewer than 10% of mid/large-cap issuers receive a Hudson Labs Risk Score above 70. Companies with a high score have about a 1 in 3 chance of receiving an SEC enforcement action in the next three years. Scores from 60 to 70 are considered medium-high.
Risk scores are optimized for precision over recall. This means that high risk companies are very likely to experience future issues but low risk companies may not all be in fact low risk. For a comprehensive view of risk, refer to the Hudson Labs Summary View on any company page.
Initial high risk scores tend to precede price collapse by at least 6 months. Risk scores are trained using 10+ years of SEC enforcement actions, regulatory investigations related to fraud, settled class action lawsuits and other target labels related to the earnings management and malfeasance.
Our risk scores ONLY use narrative information (Hudson Labs red flags) in making predictions.
Find backtesting at www.hudson-labs.com/research. Still have questions? Refer to our FAQ.
