Knowing how to analyze stocks is a MUST.
But having enough time is a problem we all have.
Here's how you can analyze a stock in less than 5 minutes:
But having enough time is a problem we all have.
Here's how you can analyze a stock in less than 5 minutes:
Try to find a reason to say 'No' as soon as possible.
When you havenāt found a reason to say no within a few minutes, you found a potentially interesting stock.
When you havenāt found a reason to say no within a few minutes, you found a potentially interesting stock.
Now let's get to work.
We will teach you how to do this in 6 simple steps via Morningstarās website.
We take Quality Company Mastercard ($MA) as an example.
We will teach you how to do this in 6 simple steps via Morningstarās website.
We take Quality Company Mastercard ($MA) as an example.
Step 1: Look at the company profile.
Go to Morningstar and take a look at the company profile of the firm you are looking at.
Make sure that you understand how the company makes money. If you donāt understand the business model, you can stop looking at the stock right away.
Go to Morningstar and take a look at the company profile of the firm you are looking at.
Make sure that you understand how the company makes money. If you donāt understand the business model, you can stop looking at the stock right away.
You want a company that is active in a strongly growing end market.
Here you can find the company profile of Mastercard:
Here you can find the company profile of Mastercard:
Step 2: Only invest in very profitable companies.
Go to the tab āOperating Performanceā and look at the profitability.
You want to invest in companies with a consistent gross margin of at least 50% and a profit margin of at least 15%.
Go to the tab āOperating Performanceā and look at the profitability.
You want to invest in companies with a consistent gross margin of at least 50% and a profit margin of at least 15%.
When a company has a high and robust gross margin, it is a great indication that the business has a competitive advantage.
Step 3: Look at the capital allocation.
Still on the āOperating Performanceā tab of Morningstar, look at the capital allocation metrics of the company.
You want a high and consistent ROIC. Look for companies with a ROIC of more than 20%.
Mastercard ticks this box.
Still on the āOperating Performanceā tab of Morningstar, look at the capital allocation metrics of the company.
You want a high and consistent ROIC. Look for companies with a ROIC of more than 20%.
Mastercard ticks this box.
Step 4: Only invest in winners.
As a Quality Investor, you only want to invest in winners.
Via the tab trailing returns you can look at the annual stock price performance over the past 15 years.
As a Quality Investor, you only want to invest in winners.
Via the tab trailing returns you can look at the annual stock price performance over the past 15 years.
You want a stock that managed to compound with at least 10% per year over the past decade (the return we are targeting as a quality investor).
Look for stocks that managed to outperform their industry as well as the index.
This clearly is the case for Mastercard.
Look for stocks that managed to outperform their industry as well as the index.
This clearly is the case for Mastercard.
Step 5: Structural growth is essential.
Go to the tab āvaluationā and scroll down to the key statistics. Click on āgrowthā there.
Buy companies who managed to grow their revenue with at least 7% per year over the past 3 years and their EPS with at least 10%.
Go to the tab āvaluationā and scroll down to the key statistics. Click on āgrowthā there.
Buy companies who managed to grow their revenue with at least 7% per year over the past 3 years and their EPS with at least 10%.
Step 6: Donāt overpay.
Look at the valuation of the company (you can do this via the āValuationā tab on Morningstar).
You donāt want to pay too much for a stock.
Look at the valuation of the company (you can do this via the āValuationā tab on Morningstar).
You donāt want to pay too much for a stock.
Compare the current price/cash flow ratio with the average price/cash flow ratio of the company over the past 5 years.
Invest in companies that are trading at a discount compared to its average valuation of the past 5 years.
Invest in companies that are trading at a discount compared to its average valuation of the past 5 years.
This is the case for Mastercard as they are trading at a price/cash flow of 30.8 while the average price/cash flow over the past 5 years was 38.9.
You didnāt find anything that turned you off in these 6 simple steps?
Good! You have found a potentially interesting stock.
Now you can put the company on your watchlist and analyze the company more thoroughly.
Good! You have found a potentially interesting stock.
Now you can put the company on your watchlist and analyze the company more thoroughly.
In a deeper analysis, you should look at the moat, the integrity of management, the capital intensity, expected growth, and so on.
If you liked this, you'll love our website.
āŖļø Each Tuesday we share 5 investment insights
āŖļø Each Thursday we publish a deeper investment article
Read the full article here:
qualitycompounding.substack.com
āŖļø Each Tuesday we share 5 investment insights
āŖļø Each Thursday we publish a deeper investment article
Read the full article here:
qualitycompounding.substack.com
Loading suggestions...