How to spot worth-buying stocks? – Best Financial & Non-Financial Indicators
I know you might be hoping for a short cut to investing, but I ain’t brainwashing you into thinking there’s one in the first place!
To spill the beans, as I started geeking over stock market, I knew right away investing needs super comprehensive research. That’s why, I’m here to lure you to the main key factors I highly consider before shaking off my wallet!
To kick off, here are the 5 main Financial Factors that should be considered:
1- Revenue Growth
As you might have expected, it’s never too old to rely on revenue growth % along the years – The higher the revenue growth % is, the more promising the company is.
2- Price to Earnings per share Ratio
Calculation: Company’s current market price ÷ Earnings per share (cumulative earnings of 1 year ÷ total shares outstanding).
Ultimately, higher P/E ratio means people are willing to pay more for a certain company due to expected higher performance in the future.
3- Debt to Equity Ratio:
Surely, a debt to equity ratio higher than 2:1 is a deal breaker. No one fancies high debt levels over neatly leveraged ones.
4- Dividend Payout Ratio:
Calculation: (Total Annual Dividend Payments ÷ Annual Earnings) x100
While this surely varies from one industry to another, generally, a dividend payout ratio of more than 100% deserves second guesses, as this means it isn’t willing to invest in its business for expansion.
5- Free Cash Flow:
Calculation: Operating Profits After Tax- Required investments in operating capital
As I like to remember it, the mother of financial indicators.
This one is an early indicator of how a company manages its business. A positive and increasing FCF is attributed to either higher operating revenues or effective cost reduction methods, which are both are attractive.
Moving on, and more precisely reaching to my favorite part – here are the top 2 Non-Financial Factors to be considered:
1- Industry nature:
Do you understand this business? Are you aware of the main drivers of this industry?
If the answer is no, then I swear to you even if the whole world is telling you to invest – Please don’t!
2- Current Global Conditions: (Economic, Epidemic & others)
I must tell you this, I started to believe anything could happen since the Covid-19 crisis and so you do!
No business can withstand certain threats like new governmental policies, interest rates, and many more.
All in all, you should never go without going the extra mile to compare a company with its peers. This is along with going through the whole package above.
