There definitely is an Art in Analyzing Stocks, it’s not cut and dry nor is it easy. Today I’m going to lay out the way that I tackle stocks I want to invest or trade in. In no way am I saying do as I do, but I am suggesting that it would be wise to look beyond the numbers, or how you feel about the stock in question that you might be interested in.
With Stocks Numbers and Statistics Aren’t everything!
Yes, the numbers are important, most of the time you want to purchase a stock with a good balance sheet and a great P & L stats, but often with growth stocks that are new, the numbers don’t always make sense. Point in case, look at TESLA. It makes no sense at all financially as to why it would have a market capitalization of over 25 Billion, and yet it seems like that stock continues to go up more than down… It’s called a momentum stock play, but it’s one that will have to come back down to reality one would think eventually. Still people are making money in this extremely risky stock (obviously I’m not in that stock, nor do I intend to be in it anytime soon, if ever).
Mostly Like like stocks that have a profit, and have a decent revenue growth rate. I like my stock to increase its revenues at least 50% in every two years. These are rare and hard to come by but I look for them as my starting point. As with all in life, great symmetry and financial figures are important!
Low or lack of debt on the books is a huge bonus too, but that is even harder to find in a growth stock…
Non-Financial considerations in picking stocks
We’ve all heard the investing mantra “Buy what you know and like“… But that is only part of the story. What I like to do is consider the depth and marketability of the product too. By depth, it’s how far the reach of the product the company is selling can go. I hardly hear this mentioned but this is critical. For instance let’s take Google. Google is used by practically everybody in the United States and most other countries (except China), so Google has incredible depth. Another great historical example is and was Pepsi, in the past it’s been a great stock along with Coke.
But let’s look at TESLA since it’s more relevant to current times. It’s a growth stock and has had an incredible rise, but I have to wonder the depth of its product. It’s market cap is 1/3 of that of Ford, but can it really sell a product that cost double or triple what Ford costs? Also, eventually one of the bigger auto companies are going to create a competing electrical car that will give Tesla a run for its money. So the real question is what is the depth of Tesla’s product…
The folks running the company have a lot to do with the success of the company too. Looks what happen to Microsoft and what is currently happening to Apple with their founders gone… Both companies are still viable, but they aren’t going to be the rockets that they were in the past, and their market caps will be blown away by Google in the next few years if all goes as it has in the recent past.
So in the nutshell, I look for great financial numbers, a great product with a great management team running the show.
I could go on and on, but this is enough for now.