The basic criteria to select good stocks
Investor's Business Daily (IBD) is the newspaper of the organization and the investment advisory market reputation in the international securities market. Here are some suggestions assess good stocks that IBD launched.1. Profit Targets
Net income or profit after tax can be considered equal to total profit or comment on a unit share ( EPS ). A company with an increase in the growth rate of earnings growth when your income is higher than the previous quarter.
A good stock has increased speed of income growth higher than 3 or 4 of the preceding quarter. Growth of income index of at least 25% compared to the same quarter of previous year. Annual EPS of good stocks to grow at least 25% compared with the previous 3 years.
According to conventional thinking, it should buy stocks with P / E is low (P / E: Price index divided by the earnings per share), and assume that these stocks have a high index is expensive and not should buy.
In fact, the best stocks typically have higher index. Should stock options of the company at a loss before the company returned to profit status when other investors discovered it.
Some stock selection criteria based on profitability indicators include:
Based on the implementation of important income than expected earnings;
Choose the companies with earnings growth of at least 25% in the latest quarter;
Selecting companies with an increase in the rate of income growth in the latest quarter 3 or 4;
Selecting companies with annual revenue growth of at least 25% each year of the previous 3 years.
2. The volume of sales (turnover)
Of sales are important indicators for measuring a company's strength and whether or not the main factor of growth. When selecting good stocks look firm strong sales pace to make the premise for earnings growth.
Some expressions can consider when a company increases sales volume as educated men more customers, increase customer purchase, the company introduced new products or penetrate new markets, improve production company old products.
Criteria to identify companies with good sales growth if the nearest 3Q increase sales volume greater than or equal to 25% compared with the previous most recent quarter.
Carefully look over sales targets for sales volume has sometimes hidden the problems. The company may be too dependent on a number of clients, depending too much on some items or too dependent on export markets.
For retailers, if open a new store also increase sales volume even though sales volume in the old shop is worsening.
It is noteworthy to add that the company sales volume, but the fact is it has not happened, or the orders that could not be moved or have not received money from the sale was recorded increased sales volume.
3. Target profit / revenue
Profit conversion rate used assessment of income revenue. In view of investors, the company should seek an increase in the rate of profit flow / revenue. The larger this number, the better the company has the management and there is good up in the operation.
Net profit may be clue mainly find shares to buy and to compare between companies with similar business lines. The criteria for determining the criteria for PBT is at least at 18 % of revenue. Profit after tax requirements and attained 10% or more.
However, it is necessary to consider all the other basic indicators such as income growth. The increase in profit line will be less if revenues fall, except to change the company's strategy to cut down the production line does not work. If profits tend to fall, it could be signal that the company is losing competitive advantage.
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4. Target Return on equity (ROE)
This is the most common indicators to assess the effectiveness of financial activities contribute to the development of the company. Said the company's ROE use of shareholder money is good or not. This indicator reflects annual increase profitability potential and effective management.
In general, avoid companies that have a smaller index of 17%. Almost every industry, the index of leading companies often reach between 20% and 30%, there are individual companies reach over 40%. This indicator tends to over time due to the application of new technologies to cut costs and improve productivity.
4. Target Return on equity (ROE)
This is the most common indicators to assess the effectiveness of financial activities contribute to the development of the company. Said the company's ROE use of shareholder money is good or not. This indicator reflects annual increase profitability potential and effective management.
In general, avoid companies that have a smaller index of 17%. Almost every industry, the index of leading companies often reach between 20% and 30%, there are individual companies reach over 40%. This indicator tends to over time due to the application of new technologies to cut costs and improve productivity.
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