Learning Value Investing: How To Analyse Stock

Showing posts with label How To Analyse Stock. Show all posts

Saturday, July 19, 2014

How do you know when to get out of a stock?

Emotional attachments can be brutal, and hope can be your true enemy. If a company has experienced a serious setback and is losing market share, don’t let your emotions get in the way. Cut your losses, dump your shares, and find another place to invest your money.

· If the company eliminates the dividend, get out immediately.

The company is in crisis mode.

· If the company cuts the dividend, take a close look to get an idea of the company’s growth prospects in light of this cut.

Selling this stock is a judgment call. A dividend cut shows the company needs to

conserve cash, typically to manage its debt. This move typically shows that

management hasn’t been on top of finances and risk management. If the cut

comes because of broader economic conditions, you have to determine

whether you believe this management team can steer the company

through dangerous waters. If the cut is because of the company’s internal

problems, sell immediately.

· If the company’s share price drops more than 10 percent but the company maintains the dividend, do a little more investigation.

This situation is another judgment call. First, look at the rest of the market. Is the price down because of a sharp decline in the sector or broad market? Is this company part of the sector causing all the trouble? For instance, if in early 2009 you held bank or real estate stocks that hadn’t cut their dividends, you may have expected them to soon follow their peers with a dividend cut. In that case, sell. If the yield is way out of whack with the rest of the sector (off by, say, 4 percentage points), that may be another warning sign to get out. On the other hand, if during a market downturn your stock is part of a stronger, more defensive industry that continues to do business and should rally with the economy, hold on for the ride and consider buying more.

· If the share price drops and the company boosts the dividend payout, buy more shares.

In my quest for learning value investing I came acrros this interesting article and thought would like to share this with the community

Comments / Improvements and points worth considering are welcome

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Friday, July 18, 2014

Eight Signs That a Company’s in Trouble

· Lower Liquidity

Liquidity is the ability of a company to quickly convert assets to cash so that it can pay its bills and meet other debt obligations

· Low Cash Flow

If you don’t have cash, you can’t pay your bills. The same is true for

companies.You need to know how well a company manages its cash

· Decreasing Profit Margins

Everyone wants to know how much money a company makes in

other words, its profits. A company’s profit dropping year to year is

another clear sign of trouble.

· Revenue Game-Playing

Problems can include managing earnings so results look better than

they really are and actually creating a fictional story about earnings

Problems can include managing earnings so results look better than

They really are and actually creating a fictional story about earnings

· Too Much Debt

Borrowing too much money to continue operations or to finance new

activities can be a major red flag that indicates future problems for a

company,

· Unrealistic Values for Assets and Liabilities

Some firms can make themselves look financially healthier by either

overvaluing their assets or undervaluing their liabilities. Overvalued

assets can make a company appear as if its holdings are worth more

than they are.

· Slow Inventory Turnover

One way to see whether a company is slowing down is to look at its

Inventory turnover (how quickly the inventory the company holds is

sold). As a product’s life span nears its end, moving that product off

the shelf tends to be harder and harder.

· Slow-Paying Customers

Companies report their sales when the initial transaction occurs, even

if the customer hasn’t yet paid cash for the product

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Thursday, July 17, 2014

How to Find Signs of value in a stock ?

Tangible signs are financial fundamentals reflecting or leading directly to earnings and business growth, while Intangible signs tend to be leading indicators of good financial fundamentals.
Tangible	Intangible
Ø Steady or Increasing Return on Equity (ROE)	Ø Price Control
Ø Strong and Growing Profitability	Ø Market Leadership
Ø Improving Productivity	Ø Good Management
Ø Producer, Not Consumer, of Capital	Ø Customer Care
Ø The Right Valuation Ratios