Are you short of time but need to value a stocks quickly? Are you looking to get the job done using reliable and free financial data?
If you need to do preliminary research on a company that interests you but have limited time in which to do it you’re not alone. The good news is that you needn’t spend hours valuing a company.
There are many time efficient strategies you can use to value a company quickly using techniques that have proven to work that will help you towards building a profitable portfolio of stocks.
The secret is to to utilise free, accurate and instantly accessible financial data. Here’s a 2 step process you can put into action TODAY.
Get Financial Information Quickly
Accurate valuations occur when you know what you want to find out and where to find out about it.
The speed of internet delivery leads us to expect company valuations instantaneously on what we consider to be the basics – price to earnings, price to tangible book value, debt to equity ratio and so forth.
We do much the same thing when shopping online, especially with the use of price comparison websites. As value investors we look for value based on what we get and how much they are asking us to pay for it.
We also talk to people about our major purchases – house, car, holidays – before the inevitable issue of how much? It’s human nature. What matters to you is how to apply this value based way of thinking quickly to stock valuations?
One awesome website to do this for US stocks with is Morningstar.
In the image below, once you’ve navigated to your stock by typing in its name in the search box, you can click the Key Ratios tab as shown.
This page will have 10 years’ worth of financial data such as revenue, EPS, dividends, book value, free cash flow – 15 different data sets in total.
The real magic is when you scroll past the financials down to the Key Ratios section. You’ll come across a tab called Liquidity/Financial Health as shown:
This will give you 10 years’ worth of 4 key metrics that measure balance sheet strength:
- Current Ratio – a company’s short term financial strength
- Quick Ratio – a company’s short term financial strength based on its most liquid assets
- Financial Leverage – how much debt a company uses to finance its operations
- Debt/Equity – a company’s debt level compared with how much shareholders own of the company
Scanning these specific pages, which will take you all of 5 minutes, will give you a pretty good understanding of not only a company’s financial strength but whether or not it has been kind to shareholders over the long term record.
For example, you can scan for a positive or negative trend in EPS over 10 years. You can also see how well or badly dividends have been paid out to shareholders giving you the opportunity to place it onto a watchlist or discard it and move on.
Streamlining The Research Process Leads To Efficiency Savings Without Degrading Results
Making sure your time is well spent filtering stocks is just one aspect of your investing strategy but its an important one because it leaves you free to perform in depth research on new additions to your watchlist at a more convenient time.
The best stocks aren’t necessarily the ones covered in the mainstream press or the largest in terms of market capitalisation. We all can’t be Warren Buffett. But they all do share one thing in common – they have strong balance sheets, have shown a history of steady earnings and have treated shareholders well over the long term – either with dividends or an increase in tangible shareholder equity.
Now it’s your turn. What ONE piece of advice would you give to a friend to take their investing to the next level? Share your thoughts and comments in the box below!