Information Investors should look at frequently




You should follow stocks that you bought and stocks you have an interest in to make sure that it still plays or will play an important role in your investment strategy.


Important Updates to look at:


1. Earnings



Revenue


An increase in revenue and net income means growth for the company, the revenue growth and share price growth might not be inline due to investors sentiment playing a role in the stock price. Look at the future Growth of the company to see whether analysts predict further growth for the company that will support revenue growth.


An increase in revenue but a decrease in net income means that the operating expenses increased for the company due to the company reinvesting in itself, advertising etc. you can look at the expense movement last year to this year to see where the cash went to.


Net Income


When the net income increases more over the past period than the revenue this means that the operating costs decreased. This means that the expenses are managed very well. Look at past performances to get an idea when this started happening.


EPS


An increase or decrease is a good view on investors sentiment over the company. Look at future growth and EPS movement over time as well as any news that will influence the wealth of the company.


2. Valuation Change

Investor sentiment improve:

  • Share price increased (why did this increase, look at recent news and updates).

  • P/E ratio more than the avg. for the industry, look at the future growth of the company to understand the high P/E, not always overvalued.

  • Valuation, is it over or undervalued.

  • Look at the industry sector for any news that contributes to the increase in share price.

Investor sentiment deteriorate:

  • Share Price decline, look at price history & performance, did the company sell a part of the business for instance.

  • P/E Ratio less than avg. for the industry due to sentiment deteriorating,

  • Valuation low, is there any reason for investors to question the company. What is happening in the Markets are there any news in the specific industry that can influence investors.


3. Executive Changes



Executive leaving a company (things to consider)


  • Was the current executive influential, will him/her leaving have n negative effect on the company or will the new executive have a bigger influence on the company.

  • Earnings for shareholders in line with market

  • Shareholding, a big number of shares held in a company is good, look at the size of the company to determine if the shareholding was high or low. Investigate the ownership detail of the company and look at shares sold by executive and also compare their holdings with other director holdings.

  • Movement in last 12 months How many executives left the company? If there is a big turnaround in staff you have to ask questions, look at the number of executives to determine how high or low the turnover is.

  • Avg. time in role Less than 2 year is not ideal. The turnover of a company for the period the executive were there is important especially if it is a CEO leaving.


4. Insider Transaction


This will be any recent trades made by management, individuals or board members of the company.


Establish why this trade took place, look at the share price and what the price did after the sale of the share.


SELL: Ask questions like, did they trade for personal affairs, they believe the stock price is very high or they want to diversify and buy stocks elsewhere.

BUY: They bought because the price is undervalued and want to use the opportunity. Is there any news that will affect the company positively for them to believe that acquiring more shares will be beneficial.


Also investigate other trades made by other insiders. Is there a trend to indicate a negative outlook on the company and also how much shares where sold, more that 50% is questionable.


5. Dividend


When a company pays out a dividend you will look at the following:


  • The date the dividend will be declared – compare to prior dividend declared date.

  • The date by when you have to hold the stock to receive the dividend.

  • How much is dividend yield – compare to prior dividend declared, this will indicate whether a business is performing better or struggling.

  • Dividend avg. for the industry – how does the company declare dividends compared to other companies in the same industry, this is also a good indication of the company’s performance and any competitors in the market.

  • How will they pay their dividend – look at cashflow or future forecast to understand how they justify declaring this dividend.


6. Price Target Change

Usually when there is a price target increase or decrease the markets react in line. This is not the fair value of the stock, price target is what an analysis expects the company will trade at within the next 12 months, again you have to make your own conclusions after doing some research.

Other announcements:


1. Buy Back

The Company is returning capital to shareholders. The buyback of issued shares will increases your ownership in the company because the shares issued are less. You will receive a bigger percentage portion of the profits.


Companies sometimes have access capital that they do not need and will distribute this in 3 different ways:

· They can reinvest the money back into the business

· Distribute to shareholders in the form of buy backs or dividends

· Hold on the cash

How will they fund the buy back?

Look at how they are planning to buy back the shares, will it be from future returns during a period of three years or will they use cash and distribute immediately. You will have to look at the Future Growth of the company to determine how much cash they will generate in the future (Earnings and Revenue Growth Forecast). If they plan to pay in cash look at the (Debt to Equity Analysis) to see how much cash they have on hand.

It is very risky if a company uses debt to buy back shares.


2. Merger Acquisition

When a company buys another company. Look at reasons why the company is buying another company, will this be for business growth, is it a competitor, are they expanding on their product line and how well will the companies blend.


You can also look at both companies’ performance overtime and decide if this is a good decision.


3. Delisting of a company


This can happen either because the company does not fulfil the legal requirements to be listed or it has been bough over by another company.

4. Follow on Equity

This is when a company needs more capital because it has to much debt or it has a very high share price and can put more shares available to buy. This will decrease your share in the profits due to the increase in shares available if you do not buy more into the stock. This is not a good state for a company to be in because a company is supposed to fund its own growth. This will mean either they have to much debt already or can’t get a loan and do not generate enough funds to support growth. Look at the price history and performance of the company and debt to equity analysis to confirm concerns in the company. Will the equity acquired change the capital structure of the company to cover current debt.


5. Lawsuits and Legal Issues

This will be when shareholders lose a lot of money due to the share price drop. Look at the Earnings and Revenue growth forecast to see what analysis predict will happen in the company with the current lawsuit situation. If there is a fine to be paid this will have an impact on their earnings as well as the valuation of the company it there is trust issues.





Happy Investing !!!





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