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How do you get to know a company before buying its stock?
I will go through few important points in the following thread. You are welcome to add more points I left behind.
I will go through few important points in the following thread. You are welcome to add more points I left behind.
1. Historical performances
This involves checking price trends, volatility of the price, historical dividend yields, dividend payout ratios, debt to equity ratios, Earnings per share, PE ratios etc
This can be obtained from financial statements or the likes of Yahoo Finance.
This involves checking price trends, volatility of the price, historical dividend yields, dividend payout ratios, debt to equity ratios, Earnings per share, PE ratios etc
This can be obtained from financial statements or the likes of Yahoo Finance.
2. The type of product or service it produces
It's very important to know what the company make money from. It may have made huge profits in the past but if the demand of its product is dying then it's a red flag.
Know the demand of the product & estimate the future demand.
It's very important to know what the company make money from. It may have made huge profits in the past but if the demand of its product is dying then it's a red flag.
Know the demand of the product & estimate the future demand.
3. How does it finance its operations?
Remember if the company files for bankruptcy, the lenders will get their share of assets first and there may not be anything left for equity holders.
Depending on the type of industry, a company with low debt is favorable.
Remember if the company files for bankruptcy, the lenders will get their share of assets first and there may not be anything left for equity holders.
Depending on the type of industry, a company with low debt is favorable.
4. What are the growth perspectives of the company?
For investors who are looking to gain from the growth of the company, it's important to evaluate the future growth. Note that companies in the growing phase normally plough back profits so expect low dividend yields.
For investors who are looking to gain from the growth of the company, it's important to evaluate the future growth. Note that companies in the growing phase normally plough back profits so expect low dividend yields.
5. Management and leadership
How good is the management? Can you trust them enough to make the company profitable?
How good is the management? Can you trust them enough to make the company profitable?
6. How loyal are the company's customers?
Loyalty is important to keep demand of products or services high. Because competition may be high, if the company dont have loyal customers, it is easy to lose money through leaving customers.
Loyalty is important to keep demand of products or services high. Because competition may be high, if the company dont have loyal customers, it is easy to lose money through leaving customers.
7. How easily can the company adapt?
This is important especially in the industry where innovation is very high e.g Tech industry.
A highly innovative company offer new solutions to problems. This makes it easy to adapt to change in demand patterns.
This is important especially in the industry where innovation is very high e.g Tech industry.
A highly innovative company offer new solutions to problems. This makes it easy to adapt to change in demand patterns.
