Growth Stock Investment Checklist

Growth Stock Investment Checklist 

The characteristics of growth stocks 

1) Company in investing mode which can be identified by significant increase in total assets YoY, 

2) Market cap for growth stocks are usually below 300m (small cap)

3) Track record of growth is less than 5 years

4 ) Unlikely to distribute dividends for US growth stocks 

5) In cyclical sectors that will outperform defensive sectors during bull market (commodities, technologies etc)

The analysis of growth stocks starts off with fundamental analysis of:

 1. Financial statement analysis, 

 2. Business sector analysis, 

 3. Share accumulation by insider management doing so would create a watchlist of stocks (in our growth stock spreadsheet) and next is to do entry & exit based on technical analysis 

Financial statement analysis which comprise of :

1) Balance sheet 
2) Income statement 
3) Owner's equity

 **In balance sheet, summary the one you should looking for 

 A) Increasing total assets annually for at least 3 years 

 B) Total debt to equity ratio less than 200% 

 C) Current ratio at least 2

Companies does not have enough current asset to be converted into cash to pay off current liabilities for that year. they can't clear their debts within the balance sheet and need to use cash from operating cash generation from cash flow statement. (the business operation for that year must make enough money to pay off short term debts)

**In profit statement, summary should be looking for :

 D) Increasing sales for at least 3 years 

 E) Price/sales ratio less than 1.5 

 F) Increasing net earnings for at least 3 years 

 G) Net profit margin at least 20% for latest financial statement 

 H) Returns on Equity at least 18% for the past 3 years 

 I ) Returns on Assets at least 10% for the past 3 years

Do not look at Earnings Per Share (a popular financial metrics) because it can be rigged. 

Earnings Per share = Latest year earnings / Total outstanding shares.

A company can increase its own EPS with falling YoY net earnings by doing share buyback exercise to dilute its shares outstanding and increase its EPS. 

Do not use P/E ratio to solely value a company because it is EPS sensitive.

PEG Ratio (Price / Earnings to Growth) provides a more complete picture than P/E ratio. It is used to determine a stock's value while taking the company's earnings growth into account. 

Less than PEG<1 is undervalued. This is not a necessary requirement but give everyone an idea of the company's valuation based on PEG

Cash flow statement, summary: 

 J) Net cash from operating activities must be positive and increasing for past 3 years 

 K) Latest financial year must have positive cash flow

If all Criteria fulfil except cashflow, continue to monitor the company as long as business performance maintain as positivity in cash flow can be reflected in a new financial year.

Business sector analysis.

Business sector analysis requires an opinion of what the world will be like in 5-10 years time. eg. type of product to be more expensive? require more service?

Individual companies P/E ratio is used as a comparison to its business sector average P/E ratio to understand how much premium u are paying compared to industry average. it is impossible to value a company solely with its individual P/E ratio as different sector has different average P/E.

Construction sector average P/E is at a low of 11, so a construction stock with P/E at 12 is actually at premium compared to industry average. 

IT sector average P/E is 37

For Growth Company is also a management decision! A chairman's decision making can easily be a growth catalyst to a stock price. can read from 'Chairman Statement' of latest financial year report.

Director buy is a very important criteria in the an growth stock investment. because executive director buy with their own money, their agenda is aligned with a retail investor. This analysis is to ensure we are not buying into growth stocks that owners are actually trying to exit from the business

Using Double Moving Average Crossover Method for buy/sell entry and exit of investment. A bullish crossover (50 days MA crosses above 150days MA) is known as a golden cross, buy signal. a bearish crossover (50 days MA crosses below 150days MA) is known as a dead cross, sell signal.

7 Great Money Tips To Lead You To Financial Freedom

Regardless of where we are in life we can all learn something about money and how to better prepare for our future.  Especially when we see that the national average is $10,000 in credit card debt and that savings and preparedness is dropping.  This article can put you back on track to a more fulfilling and financially free life.

1) Automate your investing. 
Experience has proven that if we have to make a conscious effort every time we need to invest we will start with good intentions and then miserably fail a few months later.  If you can automate your savings, whether by using your employers 401k, a sep (self employment plan), or direct deductions from your account you will finish ahead.  The rule here is if you don't see it, you won't realize it and you won't miss it.  Some of these deductions will reduce your taxable income and save you further on taxes (see your CPA and tax advisor for more info on this).  A good rule of thumb is to set aside 10% of your income.

2) Real estate. 
If you haven't already, buy a house.  Renting will only make your landlord (hint - house owner) rich. Regardless of what the immediate market does real estate is one of the best long term investments you can make.  It also has many advantages including deductions for mortgage interest.  Real estate will always go up.  People will always need a roof over their head.  Just watch HGTV, real estate has made many millionaires and is a key factor in almost every tape and book series on gaining wealth.  Stick with the standard 30 year fixed mortgage.

3)  Medical and life insurance.
You need to have them, if you think you don't just ask anyone that didn't have it when something unexpected happened.  If you love your family, they are a must.  But, on that note, don't get taken.  Buy term life. 20 years will give good term coverage and if you follow all of these tips you won't need anything beyond that.  Whole life only makes your agent rich and really never builds any value for the huge costs involved.  Term life can be purchased cheap over the internet at great savings. For medical insurance, in most states Blue Cross and Blue Shield offer great plans that are a fraction of Cobra or employer plans.  If you have an adequate employer plan, by all means use it.  Stick with big names like Blue Cross as they will be around for years.

4) Don't ever buy new cars. 
It is a fact that new cars lose 25-30% of their value the moment you drive it off the lot.  Let someone else pay for that depreciation and get a two or three year old car or truck.  With the latest technological advances cars can easily go 150,000 miles and above.  A two or three year old vehicle with 30,000 miles on it will save you not only in initial cost, but also on your insurance, and taxes.  Also do your homework before buying your car.  Get your credit score and see what loans you qualify for.  This can easily be done right off the internet and will save you big at your local dealer (never take a dealers word for your credit and rate - they will hold 1-3 points on rate and that can mean thousands in extra interest over the term of the loan).

5) Get out of debt. 
I put the investment tips above this as you need to pay yourself first.  If you are overwhelmed with debt, their are numerous non-for-profit agencies that will renegotiate your debt and terms on your behalf.  Work out a plan to get the high interest debt paid off.  Be wiser with your purchases - do you really need that 60 inch flat screen tv? a BMW you cannot afford? etc...  Cut up all cards but 1 (for emergencies you should have 1 credit card) and no store cards.  The whole purpose behiind store cards is to entice you to buy more and pay more.  My grandfather said it best - "if you can't afford it, don't buy it."  The only good loan to have is a mortgage.

6) Never burn bridges. 
If you happen to leave your current employ, leave on good terms.  Find a replacement if time permits.  This will put you in a good light with your former management and can result in a good reference, another job, a callback for more money, etc...  Never leave on bad terms.  Its just not good Kharma.  Also, it won't hurt to take former business associates and customers to lunch regularly.  This will keep you in tune to the industry, give you many additional contacts afford you future favors - just think of the lobbyists on Capital Hill, you don't think they spend all that money on their politicians for nothing do you?  Don't be afraid to ask for a favor every once in a while.  Kharma is the big rule here -when you help others you will inadvertently help yourself.

7) Give back. 
Once you've made it it is only fair that you help others less fortunate than yourself.  Regardless of your beliefs when you donate time and money to help others you will inadvertently help yourself.  You will feel great.  Also, the cardinal rule of kharma is that when you give you will get many more times what you give back.  Take the time to help by volunteering your time.  Even if it is 1 hour a week, you will help improve someone else's life.  Volunteer, it will make you a better person.