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FINANCIAL CHRONICLE™ » EXPERT CHRONICLE™ » The Bargain Hunter's Checklist

The Bargain Hunter's Checklist

Go down  Message [Page 1 of 1]

sriranga

sriranga
Co-Admin
The Bargain Hunter's Checklist Invest11

10 things to check before you press the buy button.

Here is the 10-point checklist of things to reassure yourself about before you make that snap judgement. Think of it like the AA's used car checklist.
1. Check the P/E and share price history
It's probably a low P/E that makes it look a bargain share. But compare the latest and forecast P/Es with their historical levels. If it's always been cheap, then it's not cheap now. Have a look at the share price graph over 5 years as well as shorter periods.

2. Check dividend cover and track record
Alternatively it might be the dividend that attracts you. But don't rely on a juicy dividend yield if it is not well covered. If you are buying for the yield, then you'll want to see a decent track record too.

3. Are revenues and operating profit rising?
Check the latest financials. At minimum check if revenues and operating profit increased in the latest period. If performance is declining at this level then the company may have serious problems.

4. Does the company generate cash?
Compare cash flow from operations with the operating profit. If it's a much lower figure then the company may have difficulty generating cash. Also look if net cash increased or decreased. If there was a large decrease then it needs further investigation.

5. Check debt
Look at net gearing and also interest cover, which is harder to window-dress. In the current environment companies with high debt are vulnerable to economic downturns, credit crunches and (eventually) interest rate rises.

6. Check net asset cover
Compare the tangible net asset per share with the share price. Tangible assets may provide a bit of a safety net.

7. Do you know how the company makes money?
This is a two part question: a) What does the company do? And b) How does it make money from that? Ideally it includes looking at the geographic and segmental analysis of revenues and profit, which you need to get from the company's latest report.

8. Look at the latest news
Check recent regulatory news and press articles for any important items.

9. Check directors' dealings
Recent purchases or sales of shares by directors may be significant, as well as directors total holdings. What price did the directors buy at?

10. Check brokers' recommendations
I'm not suggesting slavishly following brokers' recommendations, but a decision to buy a share if, say, five out of five brokers rate it a sell is different from buying when five out of five rate it a buy. It's a test of your conviction.
You can get all of this information from a financial website and the company's own website. Apart from the geographic and segmental analysis, it shouldn't even require looking at the company's reports. It should take about half an hour, though maybe longer if you don't have much idea what the company does.

Ideal
Of course it is much better to thoroughly research and analyse a company. The ideal opportunity arises when you have previously researched a share and liked the investment case, but thought it was too expensive. Even better if you have already decided what your maximum entry price would be. Then on a dip you can act swiftly, with just a quick review of recent news to make sure nothing has fundamentally changed.
But things are rarely ideal, and people are rarely as thorough as they mean to be. It's better to spend half an hour than five minutes. Having a checklist such as this provides a discipline to ensure you "kick the tyres" every time. I plan to cut out and keep it myself.

Extract from Investing

http://sharemarket-srilanka.blogspot.co.uk/
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investor1984

Post Tue Sep 13, 2011 6:56 pm by investor1984

@sriranga wrote:10 things to check before you press the buy button.

Here is the 10-point checklist of things to reassure yourself about before you make that snap judgement. Think of it like the AA's used car checklist.
1. Check the P/E and share price history
It's probably a low P/E that makes it look a bargain share. But compare the latest and forecast P/Es with their historical levels. If it's always been cheap, then it's not cheap now. Have a look at the share price graph over 5 years as well as shorter periods.

2. Check dividend cover and track record
Alternatively it might be the dividend that attracts you. But don't rely on a juicy dividend yield if it is not well covered. If you are buying for the yield, then you'll want to see a decent track record too.

3. Are revenues and operating profit rising?
Check the latest financials. At minimum check if revenues and operating profit increased in the latest period. If performance is declining at this level then the company may have serious problems.

4. Does the company generate cash?
Compare cash flow from operations with the operating profit. If it's a much lower figure then the company may have difficulty generating cash. Also look if net cash increased or decreased. If there was a large decrease then it needs further investigation.

5. Check debt
Look at net gearing and also interest cover, which is harder to window-dress. In the current environment companies with high debt are vulnerable to economic downturns, credit crunches and (eventually) interest rate rises.

6. Check net asset cover
Compare the tangible net asset per share with the share price. Tangible assets may provide a bit of a safety net.

7. Do you know how the company makes money?
This is a two part question: a) What does the company do? And b) How does it make money from that? Ideally it includes looking at the geographic and segmental analysis of revenues and profit, which you need to get from the company's latest report.

8. Look at the latest news
Check recent regulatory news and press articles for any important items.

9. Check directors' dealings
Recent purchases or sales of shares by directors may be significant, as well as directors total holdings. What price did the directors buy at?

10. Check brokers' recommendations
I'm not suggesting slavishly following brokers' recommendations, but a decision to buy a share if, say, five out of five brokers rate it a sell is different from buying when five out of five rate it a buy. It's a test of your conviction.
You can get all of this information from a financial website and the company's own website. Apart from the geographic and segmental analysis, it shouldn't even require looking at the company's reports. It should take about half an hour, though maybe longer if you don't have much idea what the company does.

Ideal
Of course it is much better to thoroughly research and analyse a company. The ideal opportunity arises when you have previously researched a share and liked the investment case, but thought it was too expensive. Even better if you have already decided what your maximum entry price would be. Then on a dip you can act swiftly, with just a quick review of recent news to make sure nothing has fundamentally changed.
But things are rarely ideal, and people are rarely as thorough as they mean to be. It's better to spend half an hour than five minutes. Having a checklist such as this provides a discipline to ensure you "kick the tyres" every time. I plan to cut out and keep it myself.

Extract from Investing

Most importantly check whether its manipulated or not .. coz this is CSE ... Nimal Perera's Temple

avatar

Post Tue Sep 13, 2011 7:14 pm by tata

@sriranga,

A good , comprehensive check list!
thanks for sharing in the forum.

hunter

Post Tue Sep 13, 2011 10:26 pm by hunter

Good and important one.
Thanks for posting!

sas

Post Wed Sep 14, 2011 7:42 am by sas

@sriranga,
you owe some + reps buddy. thanks

avatar

Post Wed Sep 14, 2011 9:09 pm by madeinsrilanka

Very useful one.
Thanks for posting!

amilaela

Post Thu Dec 22, 2011 7:09 pm by amilaela

thnaks

Kithsiri

Post Thu Dec 22, 2011 7:35 pm by Kithsiri

Good one again as usual. Thanks Sriranga.

avatar

Post Thu Dec 22, 2011 8:35 pm by duke

Excellent. These are what you should look before you buy in real stock markets. But,

I think this check list does not work in CSE because if you do follow this check list then you don't have anything to buy. Smile That's why foreign funds are exiting. You can't do value investing in the current market. Even if they have dropped from the their highs these stocks are not cheap.

How many stocks in the CSE will pass the check list at least a few checks? I guess may be one hand is enough to count the number with ones which pass may be 80% of the points and even they're fairly valued if not over valued.

If you check broker reports you have these 10 - 15 PER. But really how much of those numbers got distorted from the asset sales, asset revaluations, negative goodwill, tax reductions, blah, blah.
Does the company make money consistently? Profits go up and down and sometimes they're like some random number written by the accountants. Some say it's the seasonal effect. But that seasonal effect comes in only one quarter for the life time of the company if you check reports in the past. After the war all these numbers are so distorted.
Cash flow? Debt? Most of the business are full of big numbers in parentheses for so many quarters and years. Even after they selling out assets or even having an IPO and collecting mountains of money to cover the debt, still reports are full of negative numbers.
Dividends? What dividends? Smile
Broker recommendations? Smile
Director dealings? We only know when everything is over.

cseguide

Post Fri Dec 23, 2011 4:15 pm by cseguide

good article to think

K.Haputantri

Post Fri Dec 23, 2011 5:10 pm by K.Haputantri

Thanks Sriranga for sharing very valuable acadamic points with us. Invester & Duke also pointed out the real life situation at the CSE. They too deserve our attention. Let us continue this type of dialiogs so that all will be benefitted. Thanks every body who contributed.

avatar

Post Fri Dec 23, 2011 5:46 pm by lokuayya

There is a story of a peasant from rural village in monaragala who came to the town to sell a gunny bag full of Tamarind . (MR reminded this story in the parliament recently)

the mudalali weighed the gunny bag and started reducing the weight of the bag ,seed etc,etc .. to get the net weight , ..ultimately ended up calculating the net as zero kilograms..

Bewildered peasant asked from the Mudalai, ''Mudalali ,Me goniye Siyabala aththema nedda"?


Aththatama CSE goniye siyambala aththema nedda?

Kumar

Post Tue Feb 14, 2012 3:50 am by Kumar

Again one of the best post you shared with us.
Thanks a lot.
Wishing you, to do more search and post more valuable articles.

LateTackle

Post Tue Feb 14, 2012 7:23 am by LateTackle

Thanks excellent post at the correct time

avatar

Post Tue Feb 14, 2012 7:43 am by Gaja

Very good discussion, thanks for all to share your views

avatar

Post Tue Feb 14, 2012 7:56 am by Quibit

Excellent post sriranga!! This is a perfect check list for genuine stock market investors. This list may vary from that of market manipulators.

Manipulators list may include:
-How small the issued share capital of the comapny.
-How many shares are available with the public.
-What is the free float
-Previous highest and lowest price
-Inside information relating to splits, rights and profits.
-Cost of other shareholders shareholdings.
-Information from brokers with regard to forced selling decisions.
-What company article or research report that will be published in the future etc..

(This post is published purely for education purpose and not to encourage any market manipulations)

sriranga

Post Tue Feb 14, 2012 3:48 pm by sriranga

@Quibit wrote:Excellent post sriranga!! This is a perfect check list for genuine stock market investors. This list may vary from that of market manipulators.

Manipulators list may include:
-How small the issued share capital of the comapny.
-How many shares are available with the public.
-What is the free float
-Previous highest and lowest price
-Inside information relating to splits, rights and profits.
-Cost of other shareholders shareholdings.
-Information from brokers with regard to forced selling decisions.
-What company article or research report that will be published in the future etc..

(This post is published purely for education purpose and not to encourage any market manipulations)


Thanks Quibit for your comment and your post.
Really appreciate.
This post was posted in the month of September 2011 when the down trend started.
Thanks everyone for your valuable feed back.

avatar

Post Tue Feb 14, 2012 5:32 pm by kvnnn

Thnx for the list. and where can we get those details and ratios,

cseguide

Post Tue Feb 14, 2012 8:48 pm by cseguide

good one

madman

Post Tue Feb 14, 2012 9:56 pm by madman

@cseguide wrote:good article to think

Better for market of this type

cseguide

Post Tue Feb 14, 2012 10:53 pm by cseguide

@madman wrote:
@cseguide wrote:good article to think

Better for market of this type
1st post
welcome to the forum madman

avatar

Post Sun Nov 22, 2020 2:00 pm by Quibit

Restart to the Topic

avatar

Post Sun Nov 22, 2020 2:43 pm by jaya

One is LFIN Floating  4.5%

Post  by Sponsored content

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