In this time and age where we want everything to be done fast and quick, we want to decide if the stock that we are looking at is worth taking a second look to decide if we should take it further. With a large abundance of stocks being listed on various exchanges and an influx of upcoming Initial Public Offerings (IPO) interests being registered. A company’s financial ratios have to be outstanding before investors will take a second look and uncover its hidden assets and be invested in its growth story.
In this article, I am going to share with you how I quickly decide if the stock you are looking at is worth your time to perform an in-depth analysis or if you should let go and move onto another stock instead.
How I Perform this 10 minute Check
First, go to More followed by Stock Screener
Select Country, Exchange and Sector to narrow down selection
Add Criteria: Industry, P/E ratio
Why I chose Industry as a criteria is so that the P/E ratio selection that follows will be applicable for the selected industry. The results might be skewed if the industry is not set in place as different industries have different industry P/E ratio.
Next, select the P/E ratio option and narrow the P/E ratio range to the mid mark.
The reason for using the mid-mark as the cut off point is because generally a higher P/E ratio can indicate that the stock is being over-valued. Also, a higher P/E ratio means investors expect higher earnings and it also implies that many are chasing this stock. I personally do not like to chase the stocks that are “hot” or trending at the moment because I see it as a “bubble” that will burst once the craze is over.
Once the instruments are collated for the different industries, I will input them into my template with more detailed ratios and criteria where I will perform a detailed investigation for each company.
Know of any methods other than the above? Do share with our fellow readers so we can all learn from one another! Feel free to share in the comments section.