What To Look For When Evaluating Company Stocks [Research 101]
- Look for increase in cash flow year after year
- Look for increasing revenues
- Debt to Equity Ratio: Ideal is to be below 1. 1 to 2 is OK, it they have a balanced debt to equity, while anything above 2 is risky.
- Current Ratio: This should be greater than 1. If it’s below one it means they may have problems paying their loans outstanding on a short term basis.
- Return on Equity (ROE): High ROE is good sign, low ROE means that the company is underperforming and therefore not the best investment choice
- Trailing P/E vs FWD P/E – If the Trailing P/E is higher than the FWD P/E it may signal that the stock is going to slow down / drop due to decrease in revenues/profits, etc.
- Run it through AlphaSpread to check which one is undervalued
- Check GlassDoor to see what kind of ratings employees give
- Check TrustPilot to see what customers are saying
This is my system to find good investment ideas. I always like to compare the metrics with 3-4 competitors, to establish the bench mark range of KPIs. For example, what’s the average ROE. What’s the P/E..
When I get to my semi-final list of choices, then I will go through the Graham’s Valuation, Discount Cash Flow Model, Multiples Valuation Model calculations to produce the final list to invest into.
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