Investing ideas

8/19/2019 Investing ideas

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Company Indicator 1 - Revenue

Revenue is a key component to any business. How can you operate a business if you have no money?

This indicator checks how much money is flowing into the company. The more money the company

has...the better.

How do you mark this indicator?

We will look at the companies’ financials to determine if over the last 2-3 years its revenue numbers are

going down, staying where they are or going up. If revenue is going up then the company gets a pass

mark or a correct answer.

Each company has a stock symbol so assuming I want to check on Microsoft Corporation. It has a symbol

MSFT.

1. You can easily perform a Google search with "Microsoft Stock"....and you will find the symbol.

2. After getting the symbol, perform another google search with "MSFT stock" based on the results you

should see a graph and underneath it you will see Yahoo Financial. Click on Yahoo Financial

3. Yahoo Financial will have a webpage with financial details on Microsoft.

4. On the left hand-side on the page you should see menu options. There is one with heading

"Financials".

5. Under Financials click on "Income Statement". Towards the top of the report you will see the line item

"Total Revenue" for the years 2013, 2014, 2015. This company is doing good because its revenue has

been increasing over these 3 years. So long story short...MSFT gets a correct answer for "Revenue"!

Increasing revenue does not matter if it has a negative number...what we are looking for is increasing

revenue....so it could be -500, then -250, then 100....basically the company has improved from negative topositive numbers. This ends our first tutorial on the first indicator:

Company Indicator 2 – Earnings Per Share (EPS)

This indicator shows how much money, the company pays to shareholders. It is an indicator of the

profitability of the company. If the company is not making any profit, then the owners of the company will

have nothing to share. For a great company the EPS will be high...but the thing is a "high value" is relative

because one company's EPS may be different from that of another company. So here again we have to

look at the company financials and check on the last 2-3 years on the values of EPS. If EPS is on the rise,

it is a sign that the company is doing well so shareholders are getting a benefit of their individual shares. If

the EPS value is decreasing or fluctuating, then the company may be having some issues.

How do we check EPS? When you normally do a lookup of a stock symbol, it will also show the current

EPS value BUT we do not just want to see the current EPS...we are after a trend within the company...so

we want the EPS values over a certain number of years. Where do we get it? This time lets use

http://www.nasdaq.com and again we will use Microsoft Corporation (stock symbol: MSFT)

How do you mark this indicator?

1. Go to http://www.nasdaq.com/

2. 2. At the top of the page you will see a search text box...type MSFT and hot search.



3. The result will show all kinds of good stuff....but look at the left hand-side menu for "FUNDAMENTALS"

4. Click on "Revenue/EPS"

5. You will see the Revenue Indicator....and also EPS for 2014, 2015, 2016.

We want to check on EPS so this is what you do.

The table usually has 4 reporting sections: 1st, 2nd, 3rd & 4 Quarter Reports. If all 4 quarters have been

reported, then you can read the TOTALS. Otherwise you compare values for consecutive quarters. For

EPS...we are looking for increases over the reported years.

Marking EPS: Increasing values is a correct mark. Decreasing values is a wrong answer.

Using our MSFT example, I will mark Microsoft with 2/2 for the 2 indicators that we have looked so far.

Earnings per Share = (Net Income - Preferred Dividends) / Number of Common Shares Outstanding

Preferred Dividends = shares allocated to "special" owners of the company

Common Shares = shares that you and I get to buy.

Company Indicator 3 - Return of Equity (ROE)

The ROE is an indication of the efficiency of company managers in producing a return for owners of the

company. In other words how good are those running the company? Are they competent enough to make

money for you (the shareholder)? If you do not have the right people running the company, the company

is most likely going to be run down...workers will not be happy, productivity goes down and the company

cannot make any money thus leading to no profits which in turn affects the owners of the company i.e.

people who have shares in the company do not get any return for the money they have invested in thecompany.

Marking ROE: Again we look at the company financials over 2-3 years. If ROE is increasing, it is a good

sign (correct answer) otherwise we mark it as the wrong answer.

Where do we find ROE?

1. Go to http://www.nasdaq.com.

2. Perform a search on MSFT (i.e. Microsoft Corporation)

3. On the left menus under "Fundamentals" click "Income Statement"

5. Just above the report you will see Items: "Income Statement", "Balance Sheet", "Cash Flows",

"Financial Ratios"

6. Click on "Financial Ratios".... a new report is displayed

7. Scroll to the bottom and look for "After Tax ROE"

.You'll compare the values for the different years

Again increasing percentages is a good indicator.



Company fundamentals: 1. Revenue 2. EPS 3. ROE

These are the basic fundamentals which gives us an indication of the "health" of a stock or a company. If

you are satisfied with the these 3, then the next set of indicators are based on what those in the field (i.e.

the professionals) also think about the company...reasoning is these professionals know their job and they

deal with this stuff all the time so they will be in a better position to inform you (the novice or outsider)

about things that may not be that obvious....

Company Indicator 4 - Analysts Recommendations

When the pros recommend to buy a stock, it is an indication that the company is OK...i.e. you are most

likely to get a run for your money. If they recommend to sell a stock, it is an indication to move away from

the company. So...buy is good...sell is bad.

Where do we find such a recommendation?

a. www.nasdaq.com

b. perform a search for a stock e.g. MSFT (Microsoft Corporation)

c. find the menus on the left side of the page

d. under "Stock Analysis" click "Analyst Research"

e. then click on "Recommendations" link at the top of the Stock Research page.

A chart is displayed showing "Sell, Underperform, Hold, Buy, Strong Buy"

You will also see the Analyst Firms making these recommendations and how many are recommending aparticular strategy.

Underperform = the stock is not performing as expected

Hold = hold on to the stock

Marking this indicator:

Correct answer = where the consensus recommendation is a buy or strong buy.

Wrong answer = where the consensus recommendation is less than a buy.

Company Indicator 5 - Earning Surprise

The analysts (professionals) always predict what the EPS value will be for each company's Quarterly

Report. When the company releases its Report, it also announces its EPS (i.e. the real EPS). So what do

the analysts do? They compare their prediction to the actual EPS in the Quarterly Report. If the actual

EPS is the same or higher than the predicted EPS it is an indication that the company is doing well,

otherwise the company is under-performing. In short, companies are expected to meet or beat

expectations.

Where to find this information?



a. www.nasdaq.com




e. then click on "Earning Surprise" link at the top of the Stock Research page


Correct answer = where the EPS surprises during the past four quarters have all been positive.

Wrong answer = where any of the EPS surprises during the past four quarters have been negative.

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Company Indicator 6 - Earnings Forecast

This is an outlook of how the company does in future as seen by the professionals. Increasing EPS for the

future is a good sign for the company.


a. www.nasdaq.com




e. then click on "Forecast" link at the top of the Stock Research page

f. look at the "Consensus EPS Forecast" column for future yearsMarking this indicator:

Correct answer = increasing EPS values for year after year

Wrong answer = decreasing or irregular EPS values.

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Company Indicator 7 - Earnings Growth

Shows how much analysts believe earnings, for the company, are going to grow per year for the next 5

years. If you intend to be a shareholder for a company for a long run, then this is a good indicator...also if

you intend to be doing "Dividend Trading" (i.e. collecting dividends from the company) then this is also a

good indicator.


a. www.nasdaq.com




e. then click on "Earnings Growth" link at the top of the Stock Research page

f. look at the percentage value for the column "Long Term 5 yr"




Correct answer = where value is 8% or higher

Wrong answer = where value is less than 8%

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Company Indicator 8 - PEG Ratio

PEG = Price Earnings by Growth. This indicator does some computations about the price of the stock in

relation to the growth of the company. It is related to the expected earnings for the future. To simplify

things, just note that a lower PEG ratio (less than 1.0) is better than a higher value.


a. www.nasdaq.com




e. then click on "PEG Ratio" link at the top of the Stock Research page


Correct answer = value less than or equal to 1

Wrong answer = value greater than 1

Company Indicator 9 - Industry Price EarningsThis compares the company (i.e. the stock) to its industry peers. In other words, how is the company

doing among similar companies doing the same business?


a. www.nasdaq.com




e. make sure "Summary" link is selected at the top of the Stock Research page

f. scroll to the bottom of the Stock Research page

g. you will see a graph with title Price/Earnings(xxxx)...where xxxx is the current year

h. compare the 2 bars in the graph...first is the company, second is the industry standard


Correct answer = if company value is higher or equal to industry value

Wrong answer = if company value is less than the industry value

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