You must first understand the business, or else you are simply gambling. Here are some pointers to help you become a better investor. Don’t buy another stock until you’ve read all of them.
Business Model
It is critical to understand the firm’s business model and how they plan to make money. You must understand exactly what they do and how they make money. Knowing why the firm is important to work with, as well as their products, strengths, weaknesses, highlights, growth, catalysts, downsides, threats, risks, and competition, are all critical.
CEO, Management Team & Leadership
The management team is something that is rarely discussed. A poor management team can have a significant impact on a company. To learn more about the management, visit glassdoor and indeed. Google the CEO (a CEO with low/negative ratings is a red flag). Examine the management or LinkedIn profiles. Also, look for executive management bios in the 10-K annual report.
Future Growth Potential
Past financial growth trends will also be scrutinized. Look for future growth news in recent news, 10Qs, 10Ks, investor presentations, and statements. Learn about new products or changes in the landscape. Can you predict whether the company will grow?
Institutional Sponsorship
It is also critical to determine whether large banks and hedge funds are purchasing or holding these stocks. What proportion of this company’s stock is held by institutions? Are Wall Street institutions strengthening or weakening their position? These are the most important questions to ask.
Financial Health
A growing balance sheet and income statement are indicators of a well-performing business. Revenue growth, net income, EPS, and profit margins are also important indicators to consider. A quick ratio greater than 2, positive cash flows from operations, and healthy investing and financing cashflows are all required to sustain operations.
Earnings/ Revenue History
Examine the financials and projections; was there any growth? Is there room for expansion? Have they lost money? Have they outperformed their earnings? Have earnings remained stable or increased consistently?
Insider Trading
Keep an eye out for insider trading. Is the CEO purchasing or selling stock? Is management purchasing or selling stock?
Valuations
Compare valuations to peers and competitors in the industry. Is the company overpriced or underpriced? Examine the R/E, PEG, P/S, and P/CF ratios.
Recent News
Another smart move is to Google the company and look at recent news articles about it. Is recent news positive or negative? What are people saying on social media? What are the media outlets saying? What are the opinions of bloggers? Are there any explanations for the recent stock price movement? What are Google’s search trends?
Peers, Competition & Competitive Landscape
Analyze how the company compares to its competitors and peers. How do the numbers stack up? How do the products stack up? Is there a MOAT (Measurement and Operations Analysis Team) working on maintaining the competitive advantages that are expected to help it fend off competition and maintain profitability in the future?
Price Upside, Price Targets & Analysts Ratings
What do the analysts who cover the stock believe it is worth? What do the analysts who cover it think about the price targets? What is the analysts’ bull case for the stock?
Amount of Index Funds that hold this Stock
How many index funds are invested in this stock? Will they continue to purchase every month?
Average Volume
What is the stock’s liquidity? How wide/narrow are the bid/ask spreads?
Short Selling & Put/Call ratio
What percentage of this stock is sold short? Are there bets against this company? If so, why are they doing so? The same principles apply in the crypto space. Many people buy tokens without understanding the technology, holders, management team, and so on.
