Analyzing Stocks For Long Term Investment

Before buying a stock 99.99% people see its current market price which actually should be considered as last thing while evaluating the stock.

Why warren reads 5 hours a day about the company before he owns it. There is no big deal reading the annual report of the company in which you want to invest after all its your money would be invested in another’s persons venture. Before considering the bottom line (net profit ) one should consider it from top line ( revenues ).

I mean while analyzing the annual report don’t jump to bottom line as company’s Net Income but start with the Top Line

Revenues
Then come to Gross Profit = Rev-COGS
Then EBITDA = GP - SG&A
Then EBIT followed by PAT and then come to Net profit.

To evaluate a company stock price you need to know about its book value, dividend yield with value of the dividend, debt, free cash flows and somewhere reserves which the company holds for future events.

There are certain aspects that Warren revealed in many of his interviews, articles that some of the major points that one should see before buying the stocks are as follows:

1. Company should be debt free or considerable amount of is acceptable
2. Valuation should be cheap : Suppose stock ‘A’ is trading 15 times of its FY17 earnings and an another stock ‘B’ of same sector which is trading at 17 times of its FY17 earnings so prefer ‘A’ because its PE would be less than or equal to its industry PE. ( PE is price to earning ratio that defines how much to ready to pay for every one rupee you earn from the particular stock )
3. Free cash value (cash that a company is able to generate after spending the money required to maintain or expand its asset base.)
4. Reserves (Reserves are amounts that are retained in the business and not distributed to the owners. Stockholders' equity, except for basic share capital, is referred to as reserves.)
5. Company’s future plans (being or coming hereafter future events like merger talks, raising money through debentures or acquisitions).
6. Quick ratio (Capability to pay its short term debts).

If you are ready with your table and chair finally decided to analyse a company on your own because you are planning to buy its stock then along with fundamental aspects like PE, BV, ROE, ROCE, DE, Financial ratios one should consider the charts to analyse its short/long term trend in which one of them is MACD.

Moving average convergence divergence (MACD) is a trend-following momentum indicator that shows the relationship between two moving averages of prices. The MACD is calculated by subtracting the 26-day exponential moving average (EMA) from the 12-day EMA which resembles with signal line which is 9-day exponential moving average (EMA) of the stock.

I have drawn it for TCS

Some of the people who fail to analyse stocks in proper manner end up saying
 ‘You can never predict the stock prices’. There are millions of traders/Investors are sitting tight and discovering and finding our new ways to analyse market movements and fortunately it works.