To identify a good stock from a number of listed stocks could be a tough task for an investor. A wrong choice will pull all your investment to lowest levels. For instance, the share price of MMTC declined 96.55% last five years. Its share price reduced from Rs 1,290 as on October 29th, 2010, to Rs 44.45 as on October 29th, 2015. Hence, a well researched and thorough study of the balance sheet, income statement, financial ratios and promoters background can guide you in picking quality stocks. Below mentioned are 6 tips which would help you in picking quality stocks. Read more to know Important Factors to Look Before Picking a Long Term Stock:
1) Understanding the company’s business model and credentials of promoters:
First and foremost it is very crucial to understand the company’s business and at the same time one should look out for factors which distinguish the company from similar companies in its peer group. It is crucial to have a closer look at its management with respect to their business acumen and ability for ascertaining whether they can take the company’s business to great heights.
2) Analyzing Revenue Model:
After understanding the company’s business one should take a look at the company’s revenue. It means whether the enterprise is into manufacturing or is a service business. This becomes crucial for the investor to gauge and understand how the organization is clocking in revenues and its ability for growing it.
3) Analyzing EBITDA:
EBITDA (Earnings before interest, tax, depreciation and amortization) shows a clear picture about the operating profit of the company. In case the company is generating high operating profits, it implies that the company has a good potential in providing higher returns to its investors.
4) Debt/ Equity ratio:
The Debt/Equity Ratio is a measure of the company’s financial leverage. In case a lot of debt has been used for financing the operations. The company can generate much more earnings in Long Term Stock than it could have without going for outside financing. However, higher debt is also not a preferred form of financing.
5) EPS (Earnings per share) and price multiples:
As an investor one should calculate the TTM (Trailing Twelve Months) basic EPS and revenue for calculating the current P/E ratio (Price to EPS) and P/S ratio (Price to Sales) of a stock. In case the EPS of the company is significantly on the higher side as compared to the EPS of other similar stocks. Then one must consider investing in that particular Long Term Stock.
6) Considering capital expenditure and structural changes:
As an investor consider reading the website of the company. As an investor one should go through the website of the company for apprising himself of all the relevant announcements with respect to the capital expenditure and structural changes in the company together with any key management decisions.