Picking the right stocks can be challenging for most new would be investors. Most people tend to choose a stock that has been recently trending or blue chip stocks (Stable expensive stock of very financially stable companies.) As an investor stating in the market how should you go about it?
The following must be checked before buying a stock.
Check for financial stability usually marked by steady or increasing profits: you will want the profits of the company you are investing in to be on an onward rise primarily because companies (especially those listed in the stock market) needs profit to grow or survive. As a result of this is is a must have criteria for investing in such companies. For high growth companies you must look for growth potential and not profits because at a tender age are likely to be making losses.
Check for companies that are innovative in nature: The competitive nature of the corporate world demands that companies must be innovative to stay in the competition. One must always shy away from companies that see themselves as "too big to fail" companies that treat their clients as shit and pay little or no attention to employee development or the likes are bound to fail. They must also be active in their Research and Development (also known as R & D).
Ensure that the price is not overbought/Overpriced: There are some instances when companies having all the right stock metrics are overpriced (That is a lot of people have already bought the stock beyond its actual value) this was what happened to amazon and google that also crashed during the the 2000-2001 dot-com bubble bust. The companies were actually great innovative soon to be financially stable companies but where overpriced due to the hype that internet commerce was the next big thing. The earnings per share ratio helps with this. The earnings per share ratio must not be exceedingly.
In Summary
Having said the above, there are other things you may want to check like the interest coverage ratio which shows how the company will be capable of handling its interest expenses incurred from long term debt. However, the ones above are must have if your stock is to grow astronomically in the next 5-7 years.
GOOD TO GREAT: This is an exceptional book read by many CEOs and would be investors about the essential qualities companies whose stock multiplied by 1000% and lasted for 50 years had. Do well to read them.
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