How to Use a Stock Screener: A Step-by-Step Guide With Rapunzl's Stock Scanner

Out of every company on the stock market, which few fit the rules you care about? A stock screener answers that. You set the rules, it checks every company against them, and it hands back a short list you can start researching.

The skill is in how you set the rules. A screener is only as useful as the questions you give it, so this guide teaches the habit before the buttons: start from a ready-made idea, change one filter at a time, watch the list shrink, and ask why each company made it through.

We use Rapunzl's Stock Scanner for the walkthrough, because it explains each filter as you go. The same steps work in any screener, so you can carry them anywhere.

What a stock screener does

A stock screener is a search tool for stocks. You say what you care about, like size, price or profit, and it lists the companies that fit. It does the sorting so you can start your research.

Think of a screen as a set of questions. Each filter asks one, such as "Is the company profitable?" or "Does it pay a dividend?" A company shows up only if it passes every one, so each filter you add makes the list shorter.

Rapunzl's Stock Scanner works this way, and its built-in tour, Scanner 101, opens with the same idea. It is part of Rapunzl Web, and its copy is written in plain words for a high school student.

Step 1: Start from a ready-made idea

Begin with an idea instead of a blank page. In the Stock Scanner, ideas are ready-made screens, each one a named set of filters with a plain-language explanation of why anyone looks at that list. Some are about today's market, like the biggest gainers. Some are investing styles, like "Pays you to own it" for dividends. Some are chart signals, and some mix filters together.

Pick one that matches a question you already have. If you wonder whether any large, profitable companies are priced low compared with their profit, "Bargain hunters" is the idea for that question.

Every idea has a short "Watch out" line. Read it before you read the list. For Bargain hunters it says that a low P/E can be a sign the market expects profits to shrink.

Step 2: Open the recipe and read the filters

An idea is a recipe, and the Edit button shows you the ingredients. Bargain hunters keeps three things:

1. Company size of $2B or more.
2. Profitable, meaning earnings per share are above zero over the last 12 months.
3. A P/E ratio between 0 and 15.

The list is sorted by P/E, lowest first. The P/E ratio is the share price divided by the profit per share, so a P/E of 15 means paying $15 for every $1 of yearly profit.

Say the recipe as one sentence: companies worth $2B or more that make money and cost no more than $15 for each $1 of profit. If you can say it that way, you understand the screen.

Step 3: Change one filter at a time

This step teaches the most. Change a single filter, then look at the count at the top of the results, which reads like "companies match". Then change one more.

Here is a worked example of the habit. Every setting below is an illustration, and the list on any given day will differ.

1. Run Bargain hunters as it comes and note how many companies match.
2. Lower the P/E ceiling from 15 to 10. The count falls, because a company now has to be cheaper compared with its profit to pass.
3. Put the P/E back at 15 and raise the size filter from $2B to $10B. The count falls again, for a different reason: only bigger companies pass.
4. Add a Debt filter at 1 or lower. Debt here is what the company has borrowed compared with its owners' money, so a ratio of 1 means the company owes $1 for every $1 of owners' money.

Changing one thing at a time tells you which question did the cutting. If you change three filters at once and the list empties, you cannot tell which one was too strict.

If the screen returns nothing, the Stock Scanner says no companies pass every filter and offers a one-tap fix: remove a filter and see how many companies that would leave. The Reset button puts the idea's original filters back.

For a second idea, try "Quality at a fair price". It combines company size of $2B or more, return on equity of 15% or higher, a P/E between 0 and 25 and debt of 1 or lower.

Step 4: Read why each company matched

Each company in the results has a line showing the numbers that put it there, such as "P/E ratio 12.4". That figure is a made-up illustration of the format, not a real company's number.

Read that line before you click anything. If a made-up company showed 14.8, it passed barely; a made-up 6 would pass easily. Ask what the number means, and whether the company's sector makes it normal. The Stock Scanner's own note on debt says how much is normal depends on the industry, so compare a company with similar ones.

Then sort the list a different way and see who moves up.

Step 5: Research the result

The list is where research starts, not where it ends. The Stock Scanner puts it plainly: screens find companies to research, and they are not recommendations.

Tap a company to open it, then work through a short routine:

• Read what the company does, in one sentence of your own.
• Look at its chart and its numbers.
• Check the news for a reason behind the numbers.
• Ask why it matched, then compare it with a few similar companies.

A company that passes a screen has only passed the questions you asked. It has not been checked against all the things you did not ask. Practice that follow-up work in Rapunzl's simulator, where nothing real is at stake.

How fresh is the data behind each filter?

The Stock Scanner's filters come in kinds, and the kinds age differently. Knowing which is which keeps you from reading stale numbers as if they were live.

The practical rule: a company number tells you about the business as of its last report, and an indicator tells you about the price as of the last close. Mixing them is useful, but they are not looking at the same moment. For more on how chart-based measures behave, see leading and lagging indicators and how a moving average is built.

Common mistakes when you use a stock screener

• Treating the list as a buy list. A screen finds companies that look interesting on a few numbers. It cannot tell you whether any of them is a good choice.
• Stacking too many filters. Every filter must pass, so a long recipe can leave an empty list that teaches nothing.
• Changing many filters at once. You lose track of which question did the work.
• Reading one number as a verdict. A low P/E is not always a bargain, because investors may expect the profit to fall. The Stock Scanner's own note on dividend yield warns that a very high yield can happen because the price fell.
• Ignoring the date on the data. A company number and an indicator are not from the same day.
• Comparing across industries. Normal margins and debt differ a lot between lines of business, so compare companies that do similar things.

For teachers: a one-period activity

This works with any class that has met the idea of a stock and a ratio. It needs the Stock Scanner open on student devices and a way to record two numbers.

1. Pair students and assign each pair a different ready-made idea.
2. Each pair writes the idea's recipe as one plain sentence, then records how many companies match.
3. Each pair changes exactly one filter, records the new count and writes one sentence on why it moved.
4. Pairs choose one company, open it and write three lines: what it does, why it matched, and one thing the screen could not tell them.
5. Close with a share-out. Ask which question cut the list the most, and whether any pair found a company they would now want to read more about before deciding anything.

Ask students to leave the word "buy" out of their write-up; the aim is a good question and an honest note about what is still unknown. Students can save up to 20 screens they built to My Screens. Saved screens stay with the student's account, so a pair can pick up the same screen in the next class.

Bring the Stock Scanner to your classroom

If you teach economics, personal finance or business, request a demo and see how Rapunzl's curriculum, simulator and Educator Dashboard work for your students.

Families can read about Rapunzl at home on the parents page.

Screens, filters and examples in this article are for education and are not investment advice or a recommendation to buy or sell any security.

By Nate Thomas, School Partnerships Lead at Rapunzl.