My Christmas Present to you all: How to Adequately Invest.
I know you all have been waiting patiently for the Christmas edition of “How to adequately invest”, by yours truly. Hopefully this article finds you well on this christmas morning. This is my Christmas present to my readers. My weekly analysis on what makes a stock a buy. While information regarding demand for said good is intrinsic in investing, we’re going to focus on a few different things in this blog: Company performance, some metrics, and marketization.
Photo: The Balance
We’ll use some current stocks I’ve found as examples during this article. First stock, Apple. $APPL has a history of beating their yearly revenue, for example. In 2017, they posted a YTD aggregate revenue of 229,234,000, and three years later the company reported a total revenue of 274,515,000. While this is a nice indication of an increase in yearly revenue, it’s not the only measure we’ll use in terms of their financials. When we look at Apple’s balance sheets, we want to look directly at their assets firstly. We want to see the company showing current assets rather than noncurrent assets. We see Apple’s total current assets are less than their non current assets, yet not by much. Just about 37,000. Their current assets are higher than their current liabilities. Current assets show us assets in which company’s can convert easily within a year. Extremely liquid assets. Noncurrent assets are essentially long term assets, which takes longer to convert. The reason why I’d be okay with Apple’s current assets being lower than their noncurrent assets is due to the fact that 100,000,000 of it comes from investments and advances. We also want to see a company in which has continuously posted a positive net income. Apple has done so each year within the last 3 years.
Some metrics I love analyzing within companies are as follows: EPS, and P/E Ratio. Apple has continuously beaten their estimated EPS, but let's take a closer at that. EPS stands for earnings per share, which essentially represents how much investors are making in terms of the company's profitability. This is a great metric used in measuring a company’s value. In 2010, Apple saw a EPS of 0.54 while just 10 years later they are seeing a current EPS of 3.28. If we take a look back at each year, they have beaten their previous years’ EPS, which is extremely important while also beating estimates. P/E Ratio is the next metric, which is the price divided by earnings. High ratios either indicate two things: the company is overvalued, or that investors are expecting high growth within the coming quarters. While Apple’s P/E ratio is high, at 40.33, I believe it is an indication of the company being seen as a high growth company within the coming quarters.
Tomorrow, we’ll discuss some more integral metrics when looking at a company’s performance including ROE, short %, and many more.