Being part of the FreeTrade community has shown me that many people are new to investing. Investing in the markets can be overwhelming for some, the below is my thought process, the things I look out for before hitting that buy button. Being part of the community has been very rewarding, I want to give back...this is me giving back, I hope some people find it useful.
I personally look for companies with a market cap in the £50m to £950m size range. They generally often have better growth prospects.
Before I purchase a stock, I troll through their latest reports. Things I am looking for are, positive outlook, increase in profits, dividends with a reduction in debt.
I like to buy stocks that have a spread below 400bps
I like looking at the chart, is the right-hand side higher than the left-hand side? Is there continuous growth in the share price, where is the support and where is the resistance is.
How does the website look, does it look professional does it explain what the company does? Is there a decent amount of investor information?
I like to check the companies Net Profit, Dividend Per Share and Net Debt. I love seeing a company that can increase it's profits and dividends 3 years running whilst reducing their net debt. If the company has increased profit and dividends YOY they're generally going to keep doing so.
I generally look for a P/E ratio in the region of 12-25. However, I find P/Es too abstract and only give them a passing glance.
What's the viewpoint for the industry that the company is in. Is there a positive outlook for the industry? Is there room for it to grow or could there be troubling times for the sector?
Questions I ask myself before hitting buy.
- What is it worth (Mkt Cap)
- What are it’s full-year pre-tax profits
- Are profits rising
- Are dividends rising
- Is the outlook positive
- Are there any negative things happening
- What is the net debt? Or does it have net cash
- What kind of dividends does it pay
- What does it do and what sector is it in
- Are its markets likely to improve or get worst
- Whens the next statement due
- Has the share price been moving up
There are many more things I generally look out for, but the above are the fundamentals.
The above has mostly been taken from Robbie Burns (The Naked Trader) I have read many his books, they're easy to read and have no financial mumbo jumbo. I don't pick the same stocks as Robbie but I do use his strategies and thought process.