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When the markets are moving such as now, it's easy to fall into the trap of junk stocks and make costly investment mistakes
This is where Investment checklist comes in handy as it makes the stock research more structured and process driven than random
Here's our basic checklist
This is where Investment checklist comes in handy as it makes the stock research more structured and process driven than random
Here's our basic checklist
Business Checklist -
1. Is the business simple and easy to understand?
2. What is the nature of the business? Is it deeply cyclical (ex. Commodities), moderately cyclical (ex. Financial services) or low cyclical (ex. Pharma, FMCG, etc)
3. How long has the company been listed?
1. Is the business simple and easy to understand?
2. What is the nature of the business? Is it deeply cyclical (ex. Commodities), moderately cyclical (ex. Financial services) or low cyclical (ex. Pharma, FMCG, etc)
3. How long has the company been listed?
(we tend to avoid companies with listing history of less than 3 years)
4. What is the growth outlook for the industry?
5. What is the positioning of the company in the industry?
Management -
1. How long has the management been in the business?
4. What is the growth outlook for the industry?
5. What is the positioning of the company in the industry?
Management -
1. How long has the management been in the business?
2. How did it respond to previous downturns/crises?
3. Do they have skin in the game i.e. whether their interests are aligned with the minority shareholders?
4. Is the salary structure performance driven?
3. Do they have skin in the game i.e. whether their interests are aligned with the minority shareholders?
4. Is the salary structure performance driven?
5. Check the related party transactions to see if private firms of management are being given preference over the listed company
Financial performance -
1. Check financial performance for minimum 7 years and possibly 10 years
Financial performance -
1. Check financial performance for minimum 7 years and possibly 10 years
2. 2. If cyclical company, check whether the performance is reflecting cyclical low or high
3. In a low cyclical company, look for growth in sales, margin profile, profitability, return ratios
4. Match operating cash flows with PAT
5. Look at the trend of cash conversion cycle
3. In a low cyclical company, look for growth in sales, margin profile, profitability, return ratios
4. Match operating cash flows with PAT
5. Look at the trend of cash conversion cycle
6. Check if the company has history of regular dilution in equity
7. Give priority to consolidated results over standalone results
7. Give priority to consolidated results over standalone results
Valuations - Valuations is a very subjective exercise and becomes more complicated in case of low cyclical, high quality companies.
1. In case of cyclical companies, focus more on mcap/sales, price to book value than price to earnings
1. In case of cyclical companies, focus more on mcap/sales, price to book value than price to earnings
2. Avoid paying more than 30-35 earnings even when buying presumably a high-quality company
