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Stock Analysis Checklist
Learn how to research & analyze stocks

Checklist of important points to check when researching growth stock candidates

 

Learn How to Analyze Stocks
"Fire Your Stock Analyst"
A Step-by-Step Guide by Harry Domash

What

Where

Why

Action

One-year Price chart with 50-day moving average

Nasdaq
www.nasdaq.com

 > ticker symbol

> Basic Chart

Select:1y (year) for time frame, 50-day Simple Moving Average (Indicator > (SMA, 50 day)

 sample

Buying a stock while it’s in a downtrend is dangerous, as it will likely move lower. A stock is in a downtrend if its price is below its moving average (MA), and in an uptrend if above. Use the 50-day Simple Moving Average (SMA)

O.K. to buy if stock price is above its 50-day moving average.

Price/Sales ratio (P/S)

MarketWatch
www.marketwatch.com

> ticker symbol
Profile > Valuation

sample

Valuation check. A stock with a P/S above 10 is momentum priced.

Buying momentum priced stocks is only recommended in a strong market.

O.K. to buy if P/S is less than 10. P/S ratios between 3 and 5 are best for growth stocks.

Ratios below 2 reflect value priced stocks.  

Cash Flow per share

MarketWatch
> ticker symbol
Profile > Valuation
sample

Companies with positive operating cash flow are safer investments than cash burners (negative cash flow). 

O.K. to buy if Cash Flow per share is a positive number. 

Average Daily Volume (shares)

MarketWatch
> ticker symbol
Overview
sample

Institutional buying is an important catalyst for share price growth. 

Institutions buy hundreds of thousands of shares and prefer stocks with large daily trading volumes so they can easily move in and out of positions. 

O.K. to buy if Average Daily Volume is 150,000 shares or higher, and above one million shares is best. 

Fundamental Health Grade

Navellier Portfolio Grader
Investorplace.com

Invest, don’t gamble! Stick with companies with solid fundamentals.

O.K. to buy if Fundamental Grade = A, B or C

Got Growth?

Morningstar
www.morningstar.com
ticker symbol > Quote
> scroll down to "Growth" in
Premium Anly Rpt section

sample

Consistent strong sales growth over extended periods translates to long-term stock price appreciation. 

O.K. to buy if Growth Grade = “A” or “B”

Institutional Ownership

Yahoo! Finance
> ticker symbol
Key Statistics

Share Statistics Section

(% held by institutions)

sample

Lack of institutional ownership means mutual funds, pension plans and other institutional buyers don’t think they will make money owning the stock. Why would you want to own it?

O.K. to buy if percent held by institutions is at least 30% of shares outstanding. 

Number of Analysts Making Buy/Hold/Sell Recs.

MarketWatch
www.marketwatch.com

> ticker symbol
> Analyst Estimates
> Analyst Recommend

sample

A company’s performance will go unrewarded if nobody knows about it. 

Sufficient analyst coverage is essential to create investor interest, especially from institutions. 

O.K. to buy if a total of at least four analysts are listed as currently making strong buy, buy, hold, underperform, or sell recommendations. 

Look only at the total number of analysts making recommendations, not whether there are more buys than holds, etc. 

- - - - - - - - - - Advanced Research & Analysis- - - - - - - - - - -

Calculator Required 

Gross Margin Trend

MarketWatch
www.marketwatch.com

ticker symbol > Financials Income Statement >
Quarter Financials

sample

Changes in gross margin percentages from quarter to quarter point to changes in a company’s competitive position in its marketplace. 

Increasing gross margins signal an improving competitive position, and declining margins warn of increasing competition. 

Gross margin (GM) is the "Gross Income" divided by "Revenue," expressed as a percentage.

Calculate the GM for each of the past five quarters, and observe the GM trend.

O.K. to buy if the trend is flat or increasing (best). Ignore variations of less than 1%, e.g. from 41% to 40.5%.

Revenue (sales)  Growth Rate
Latest Quarter compared to previous quarter & most recent year.

MarketWatch
www.marketwatch.com

> ticker symbol
> Financials
> Income Statement

> Quarter Financial

> View Ratios
sample (click on View Ratios)

Slowing revenue (sales) growth is a “red flag” signaling danger ahead. 

Compare the most recent quarter's (MRQ) year-over-year sales growth rate to previous quarters and to the most recent year.

Ideally, revenue growth would be accelerating or at least equal to earlier numbers. But, it's O.K. to buy if MRQ growth is at least 75% of recent growth numbers

Forecast Revenue Growth Rate 

Yahoo! Finance
(finance.yahoo.com > ticker symbol >Analysts)
sample

Compare consensus revenue growth forecasts to historical numbers

Check the forecast year-over-year revenue growth percentage for the current quarter vs. MRQ growth rate found in the previous step

Ideally, the growth rate should be accelerating but it's O.K. to buy if the forecast year-over-year revenue growth is at least 75% of historical year-over-year growth

Accounts Receivables Growth vs. Sales Growth

MarketWatch
www.marketwatch.com

ticker symbol > Financials Income Statement >
Quarter Financials

sample

Financials Balance Sheet >
Quarter Financials

sample

Accounts receivables are monies owed by a company’s customers for goods received. 

The Accounts Receivables Ratio (ratio) is the total receivables divided by the revenue for the same quarter. 

A significantly higher ratio vs. year-ago is a red flag pointing to future problems. 

Compute the ratio for the most recent and the year-ago quarters.

Ideally the most recent ratio would be less than year-ago, but it's O.K. to buy if the ratio is the same or lower than year-ago. Ignore increases that are less than 5%, e.g. from 60% to 64%. 

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