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This document provides a checklist for analyzing stocks with 12 criteria. Each criterion is accompanied by an explanation of why it is important and what the ideal or acceptable thresholds are to consider buying the stock. The criteria cover analyzing price trends, valuation, cash flow, trading volume, financial health grades, growth rates, institutional ownership, analyst coverage, gross margins, revenue growth, forecasts, and accounts receivable ratios. The goal is to only invest in stocks that meet the predefined acceptable standards across these various metrics.
This document provides a checklist for analyzing stocks with 12 criteria. Each criterion is accompanied by an explanation of why it is important and what the ideal or acceptable thresholds are to consider buying the stock. The criteria cover analyzing price trends, valuation, cash flow, trading volume, financial health grades, growth rates, institutional ownership, analyst coverage, gross margins, revenue growth, forecasts, and accounts receivable ratios. The goal is to only invest in stocks that meet the predefined acceptable standards across these various metrics.
This document provides a checklist for analyzing stocks with 12 criteria. Each criterion is accompanied by an explanation of why it is important and what the ideal or acceptable thresholds are to consider buying the stock. The criteria cover analyzing price trends, valuation, cash flow, trading volume, financial health grades, growth rates, institutional ownership, analyst coverage, gross margins, revenue growth, forecasts, and accounts receivable ratios. The goal is to only invest in stocks that meet the predefined acceptable standards across these various metrics.
1 One-year Price chart with 50-day moving average Buying a stock while its in a downtrend is dangerous, as it will likely move lower. A stock is in a downtrend if its price is below its MA, and in an uptrend if above. Use the 50-day MA. 2 Price/Sales ratio (P/S) Valuation check. A stock with a P/S above 10 is momentum priced. Buying momentum priced stocks is only recommended in a strong market. 3 Cash Flow per share Companies with positive operating cash flow are safer investments than cash burners (negative cash flow). 4 Average Daily Volume (shares) Institutional buying is an important catalyst for stock price growth. Institutions buy hundreds of thousands of shares and prefer stocks with large daily trading volumes so they can easily move in and out of positions. 5 Financial Health Grade Invest, dont gamble! Stick with companies with solid financials. 6 Growth Grade Consistent strong sales growth over extended periods translates to long-term stock price appreciation. 7 Institutional Ownership Lack of institutional ownership means mutual funds, pension plans and other institutional buyers dont think they will make money owning the stock. Why would you want to own it? 8 Number of Analysts Making Buy/Hold/Sell Recommendations A companys performance can go unrewarded if nobody knows about it. Sufficient analyst coverage is necessary to create investor interest, especially from institutions. 9 Gross Margin Trend Changes in gross margin percentages from quarter to quarter point to changes in a companys competitive position in its marketplace. Increasing gross margins signal an improving competitive position, and declining margins warn of increasing competition. 10 Revenue Growth Rate Latest Quarter compared to year- ago quarter Slowing revenue (sales) growth is an important red flag signaling danger ahead. 11 Forecast Revenue Growth Rate Look at consensus revenue forecasts to determine if historical growth rates are expected to continue. Advanced Research & Analysis - Calculater Required Stock Analysis Checklist 12 Accounts Receivables Growth vs. Sales Growth Accounts receivables are monies owed by a companys customers for goods received. The Accounts Receivables Ratio (ratio) is the net receivables divided by the revenue for the same quarter. A significantly higher ratio vs. year-ago is a red flag pointing to future problems. Action O.K. to buy if stock price is above its 50-day moving average. O.K. to buy if P/S is less than 10. P/S ratios between 3 and 5 are best for growth stocks. Ratios below 2 reflect value priced stocks. O.K. to buy if Cash Flow per share is a positive number. O.K. to buy if Average Daily Volume is 100,000 shares or higher (0.1 mil), and above one million shares is best. O.K. to buy if Financial Health Grade = A, B or C O.K. to buy if Growth Grade = A or B O.K. to buy if institutions own at least 30% of shares outstanding. O.K. to buy if a total of at least four analysts are listed as currently making strong buy, buy, hold, underperform, or sell recommendations. Look only at the total number of analysts making recommendations, not whether there are more buys than holds, etc. Gross margin (GM) is the "Gross Profit" divided by "Total Revenue," expressed as a percentage. Calculate the GM for each of the past five quarters, and observe the GM trend. O.K. to buy if the trend is flat or increasing. Ignore variations of less than 1%, e.g. from 41% to 40.5%. Use your calculator to compute the most recent quarters (MRQ) revenue growth rate (percentage) vs. the year-ago quarter. Compare that figure to the 1 Year sales growth listed in the Growth Rate section. Ideally, the MRQ growth should exceed the 1-year figure, signaling accelerating growth. But, it's O.K. to buy if MRQ growth is at least 85 % of 1-Year growth. Check the forecast revenue growth percentage for the current quarter vs. the corresponding year-ago quarter. Ideally, the growth rate should be accelerating but it's O.K. to buy if the forecast year-over-year revenue growth is at least 80% of the 1- Year growth from the previous step. Advanced Research & Analysis - Calculater Required Stock Analysis Checklist Compute the ratio for the most recent and the year-ago quarters. Ideally the most recent ratio would be less than year-ago, but it's O.K. to buy if the ratio is the same or lower than year-ago. Ignore increases that are less than 5%, e.g. from 60% to 64%.
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