How to pick a strong stock in under two minutes? ๐
Many investors only look at the stock price, but the truth is that a company's strength shows in its financials. Here's a practical checklist to help you quickly filter out most weak stocks:
1๏ธโฃ Price-to-Earnings Ratio (P/E)
- It compares the stock price to its earnings.
- Don't rely on a fixed number, but compare it to the sector average.
- A high multiple might be justified if the company is growing rapidly.
2๏ธโฃ Revenue Growth
- Look for consistent growth over the last 3 years.
- Steady growth is often better than temporary spikes.
3๏ธโฃ Debt to Equity Ratio (Debt/Equity)
- The lower they are, the safer the financial situation.
- Consider the nature of the sector, as some industries operate with higher debt than others.
4๏ธโฃ Free Cash Flow
- Earnings are important, but real cash is more important.
- Positive and continuous cash flow indicates a company capable of funding its operations.
5๏ธโฃ Dividend Yield
- A return between 3% and 6% could be good if sustainable.
- A very high yield might be a signal worth checking before investing.
And don't stop here... also add these factors:
โ Return on Equity (ROE)
โ Earnings Per Share Growth (EPS Growth)
โ Profit margins
โ Stability of share count and no ongoing dilution of shareholders
โ Quality of management and future plans
Where do you get this data?
- ๐น Finviz: the best quick filter for most indicators.
- ๐น TradingView: great for financial statements and technical analysis.
- ๐น Yahoo Finance: useful for checking data and news.
- ๐น Company annual reports: the official and most reliable source.
Practical examples
- A company that grows its revenue and generates positive free cash flow with moderate debt could be a good candidate for study.
- A company with declining revenues, increasing debt, and negative cash flow deserves caution even if its stock price seems low.
๐ Remember: there is no single indicator that dictates an investment decision. The full picture makes the difference.
โ๏ธ Al-Hashimi
