Canadian Money Forum banner

1 - 9 of 9 Posts

·
Registered
Joined
·
13 Posts
Discussion Starter #1
Hello all,

I've been reading up a lot on what to look for as positives when researching companies and stock picking, consistent positive growth, large moats, low debt, etc., but I've found some difficulty in finding the negatives.

I understand that a lot of the negatives are simply the opposite of the positives, but that being said, are there any things that strike you as instant red flags when researching a company/stock? Whether it be technical, fundamental, news-related, etc.?

Cheers.
 

·
Registered
Joined
·
16,686 Posts
If the stock price persistently stays under the 200 day moving average, that's a big red flag. This simple indicator has served me well over the years.

Example: a good stock tends to stay above the 200 day average, like CP

20274



And a poor stock like CPG tends to stay under the 200 day. Even when it manages to get above, it doesn't last very long

20275
 

·
Registered
Joined
·
3,732 Posts
Some companies maintain dividends and stock price though the company is not doing too well. If you see payouts for dividends and stock buybacks equal or exceed cash flow it is a sign they are in trouble and don't want anyone to notice. If they borrow money to do it it's worse.
 

·
Registered
Joined
·
13 Posts
Discussion Starter #4
Some companies maintain dividends and stock prices though the company is not doing too well. If you see payouts for dividends and stock buybacks equal or exceed cash flow it is a sign they are in trouble and don't want anyone to notice. If they borrow money to do it it's worse.
Would this just be the Dividend payout ratio, and making sure it's at a sustainable level? I heard somewhere that you should also take Free Cash Flow into consideration when looking at Dividend Payout?
 

·
Registered
Joined
·
2,732 Posts
The dividend yield is a classic red flag. Typically, a 5-7% yield signals low growth. 7-10% signals potential trouble. And > 10% is a huge red flag.
 

·
Registered
Joined
·
3,732 Posts
Speaking of Red Flags, Chinese companies are notoriously crooked. Some have been exposed as complete fakes with balance sheets and annual reports that are completely cooked.
 

·
Registered
Joined
·
3,732 Posts
Here is a list of things to look for if you are seeking overpriced stocks to short.

1. Massively promotional CEO who actively looks for publicity and spends a lot of time courting Wall Street/investors etc and is very media savvy
2. Huge CEO/Senior Management compensation package NOT tied to cash flow or Earnings but just to Sales and/or the stock price, creating the possibility of egregious wealth creation if the stock goes up a lot. Huge pledging of collateral by the CEO in return for margin loans to fund a billionaire lifestyle
3. Management compensation generally way out of line with peers despite notably less profitability
4. Glossy future projections that have a habit over a long period of being proven to be too optimistic
5. Questionable product quality, ie defects (boon??) or debatable technological leads over similar products
6. Some evidence of self certifying, whether it be through strange international subsidiaries or not having an Auditor or experiencing unusual and slightly sudden end of quarter surges in revenues, up to and including the last day
7. Unusual or unverified and large Receivables in a business where the product is exchanged for cash up front
8. Evidence that the company is existing on a shoestring, not paying Suppliers, Employees, Landlords etc
9. Unusual margin progression, with SG +A going down over time despite a rising global footprint, or GM's staying flat despite much lower ASP's over time, for instance.
10. High levels of Gross Debt. Cash balances not matched by notable Interest Income thereby suggesting they are fraudulent
11. High employee turnover, especially in the LEGAL and FINANCE areas. Co-founders or Board members leaving.
12. Aggressive pursuit via paid third parties and/or “heavies” of any critics or people who have too many questions, which in any case are “boring”
13. Dislike of Hedge Funds
14. Possible Narcissistic Personality Disorder on the part of the CEO. Additional points if he/she uses Twitter a lot
15. Large cabal of outcasts/weirdos/bloggers/Twitter groups who have been saying for years that everything is amiss but just get a lot of criticism because the stock keeps going up ergo they must be idiots
16. Slowing top line growth rate despite all the hoopla and supposed “growth stock” status. Evidence of competitors rapidly eroding unsustainably high market share.
17. Loss making. Ideally never made a profit but likes to pretend it did or failing that, that it will for sure in 2-3 years due to highly questionable new products. But the 2-3 years gets pushed out constantly
18. Extensive use/exclusive use of NON-GAAP Accounting and occasional bridging to get from a Net Loss to a (small) Net Profit via poorly explained one-offs/Other Items/unusually large Credits of some kind in a desperate attempt to get into an Index by illicit means
19. Weak Board, preferably also small and ideally in hock in some way to the CEO, who therefore do his/her bidding. Helps if some of them are related physically to the CEO.
20. Gullible media, gullible analysts and dozens of paid bloggers who produce Price Targets out of nowhere based on “Option Value” or put another way products that are at least 5 years away from having any material impact.
Source: Who Is The Next Wirecard?
 

·
Registered
Joined
·
990 Posts
Companies can be big black boxes. If you look at the financials look at the bv/share and div/share over time. Just make sure they are both rising
 
1 - 9 of 9 Posts
Top