Who was Richard Driehaus, and what is the Driehaus Revised Screen?
Richard Driehaus (1942–2021), the Chicago money manager behind Driehaus Capital Management, is often called the father of momentum investing. He rejected the value investor's creed outright: “I believe far more money is made by buying high and selling at even higher prices,” he said, brushing aside the notion of a single correct price-earnings ratio. The Driehaus Revised Screen is AAII's updated reading of his method, rebuilt from Peter J. Tanous's Investment Gurus (1997) and the February 2000 Barron's article “The Driehaus Rules.” It still targets small- and mid-cap momentum, but it leans much harder on the direction analysts are moving their estimates.
The core idea
Driehaus saw earnings as the fountainhead of future price moves, and this revised stock screen sharpens that focus onto recent results. It wants growth that is accelerating on two clocks at once: year over year, and quarter over quarter on a same-quarter basis, comparing a quarter to the matching quarter a year earlier so that seasonal swings do not distort the read. One strong period is not enough — the pace of growth itself has to be quickening.
What separates the revised version from the original is its attention to what analysts do next. A company can post a big earnings beat and still get sold off if management guides the coming quarters lower, so the screen insists that consensus estimates for both this fiscal year and next be revised upward, with no downward cuts anywhere in the past month. Rising estimates act as a proxy for stronger guidance and results that the market has not fully absorbed yet.
What the Driehaus Revised Screen looks for
- Growth in earnings per share from continuing operations over the trailing 12 months is positive.
- That trailing-12-month growth is at least as high as the growth recorded over the last full fiscal year, so recent growth is holding up or accelerating.
- Annual growth is accelerating: the Y2-to-Y1 growth rate is greater than the Y3-to-Y2 rate.
- Quarterly growth is accelerating too: same-quarter growth from Q5 to Q1 is greater than the growth from Q6 to Q2.
- At least three analysts provide consensus estimates for the current fiscal year, and those analysts expect the company to be profitable this year.
- Reported earnings for the most recent completed fiscal quarter beat the consensus estimate by at least 5%.
- The consensus estimate for the current fiscal year has risen over the past month, and the estimate for the next fiscal year has risen over the past month as well.
- Over the past month there have been no downward revisions to either the current-year or the next-year consensus estimate.
- The stock price has risen over the last four weeks.
- Market capitalization is above $50 million and below $3 billion.
- Over-the-counter (OTC) stocks are excluded.
Compared with the original Driehaus screen, the revised version drops the 26-week relative-strength and industry-strength tests, the minimum-volume rule, and the exclusion of ADRs — Driehaus's firm had expanded into international markets by then. It also eases the surprise threshold from 10% to 5%, while adding the estimate-revision filters above and an explicit same-quarter acceleration test.
Why the approach can work
Two forces are being stacked here. First, positive earnings surprises tend to be followed by upward drift, because analysts start the quarter conservative and a beat forces them to mark their numbers higher; the revised screen captures that adjustment directly by demanding fresh upward revisions rather than waiting to infer them from price. Second, requiring analysts to already expect a profit this year filters out speculative turnarounds whose earnings are hard to model. Keeping the field between $50 million and $3 billion aims at the smaller, faster-moving companies where an acceleration in results is most likely to still be under-recognized.
What to keep in mind
Momentum can crash back to earth violently — the unwinding of the late-1990s tech bubble and the 2008–2009 financial crisis both punished trend-followers savagely, and the drawdowns can be deep enough to end a strategy that lacks a firm exit rule. Because the revised screen carries no volume test, some names it surfaces may be too thin to trade at a reasonable price, and estimate-revision data thins out or turns stale for the smallest companies. Expect heavy turnover as fresh beats replace fading ones. This is a method for investors willing to sell a good-looking stock the moment its trend breaks, not a buy-and-hold list.
Sources
Investment Gurus, Peter J. Tanous, New York Institute of Finance, 1997; and “The Driehaus Rules,” Barron's, February 2000.
American Association of Individual Investors (AAII) — Stock Investor Pro screen definition.