How To Do A Basic Stock estimation

Penny Stock Trading - How To Do A Basic Stock estimation

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There are a few coarse variables to collate when evaluating a stock:

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1) Profitability: Does the company make a lot of money? 2) Growth: past, present, future--major driver of stock price 3) Financial Health: Strong balance Sheet--the company can weather a storm. 4) Value: the stock is available at a allowance (on sale) compared to its historical value, compared to its competitors, compared to its intrinsic value.

1) Profitability: (Return on Capital and Return on Equity) (Roc) & (Roe)

Return on Equity (Roe) (Roe) Low numbers (> 12%), especially if declining, (Look elsewhere) Steadily addition Roe speaks well of company management.

Measure of profitability Also indicates internal growth inherent (ability to self-finance growth without borrowing money or issuing new coarse shares)

2) Growth: income and Sales Per Share (Eps) original determinant of share price movement Rapid and consistent growth is very desired (harder to manipulate straight through accounting practices than earnings) Look at Value Line Charts (visual of cash flow growth) issue of more coarse stock (dilutes Eps)

The next step would be to compile a list of your top stocks and then do a comparative diagnosis and value the Qualitative variables. This and other strategies are discussed at the best venture guidance blog.

Dividend growth Some associates pay out too much in a good year and then sacrifice them in a bad year (can hammer stock)

3) Financial vigor Capital Structure: immoderate debt? Shareholder risk increases with the proportion of debt in a company's capitalization A company with zero debt can't go bankrupt! (Free Cash Flow Per Share): Cash Flow - (dividends + Capital spending): Capital Spending requirements that deplete Cf over long haul is bad, Short term good.

Long Term Debt: explore long-term debt load in terms of absolute numbers and its trendàstable or declining trend suggests good financial health

Current Position To asses solvency: pay attention to cash and marketable securities; monitor receivables closely. Receivables addition at rate faster than sales (perhaps some money owed to company is not being collected) Inventories: should not grow faster than sales (Red Flag)

4) Value: High/Low The valuation of a stock relative to its own history: P/E, Price/Cash Flow, Price/Sales, Price/Book Value collate past 5 years (Watch out for cyclical companies) The valuation of a stock relative to others in its peer group: collate to see if stock is above of below where it traditionally sites in terms of the entire store of stocks Quickest way to evaluateà collate cash flow line (the value line) or income line to see if company is above or below the line (stocks at or near line may be undervalued)

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