So, in the Hennessy Cornerstone Growth Fund, we use a quantitative approach to investing. We look for 50 companies that we want to invest in, so it's relatively concentrated. These are companies that have growth at a reasonable price, and really we're looking at value and momentum.
We utilize a quantitative formula in investing because we want it to be transparent to shareholders. It's readily available for all of our shareholders to see how we do this. We want it to be time-tested. We've done it over many years and we want it to be repeatable, and we feel that quantitative formulas allow us to do that.
So we start with a very large universe of 10,000 or more companies, and we want to whittle that down to the 50 that we own. So we do that by, first of all, cutting out the very tiniest micro cap companies, $175 million market cap and above is what we want to look at. We're looking for price to sales of 1.5 times or less meaning that we won't pay more than $1.50 for every dollar in revenues of these companies.
Annual earnings growth year over year, we want to see that, and then we also want to see price momentum over the three month period, over a six month period. And then we take those companies, whatever's left at that point, we rank them by the 12 month price performance, and we pick the 50 stocks that have the best performance of the past 12 months.
We use price to sales as our primary valuation metric for a couple of reasons. First, it's a little bit harder to manipulate sales than it is earnings. Earnings are subject to several adjustments and assumptions that could be made by management.
More importantly, though, we use price to sales as we feel it captures companies that may have recently returned to profitability, or companies that might have temporarily depressed levels of earnings. So traditional valuation metrics would overlook these companies and we feel that it's important to have a metric that encompasses a larger opportunity set.
The final step in our investment process is stock price momentum. We feel that stock price momentum is a proxy for investor sentiment. Investor sentiment is important as we feel that it is a way for us to see if the investment community has taken notice of the improving fundamentals in the companies that we're considering.