"Danger Signs when Researching Stocks"

Key Questions to Find the Danger Signs and Eliminate Obvious Losers

By Using the Yahoo! Key Statistics Page

1. Does the company make a profit? The Profit Margin (ttm) should be a positive number and the larger profit margin the better. (ttm = trailing twelve months, in other words…last year)
2. Is the stock overpriced compared to its growth rate? The PEG Ratio (5 yr expected) will tell you that. In most cases it should be less than 2. This ratio is the price/earnings ratio divided by the growth rate expected during the next 5 years.
3. Are the company's sales growing? The Qrtly Revenue Growth (yoy) will tell you the percentage of sales growth from the same period of the past year. (yoy = year over year) Once again, the larger this number the better.
4. Are the company's profits growing? The Qrtly Earnings Growth (yoy) should also be as large as possible. This is the companies bottom-line and is the only reason they are in business.
5. Does the company carry a lot of debt? The Debt/Equity Ratio (mrq) is the amount of debt compared to how much all of the company's stock is worth (its equity). This number should be less than 1. Only in an extraordinary growth company, would a number greater than 1 be acceptable.
6. Are a lot of people selling the stock short (hoping the price will go down)? The Short % of Float tells you the percentage of share being sold short out of the total number of shares in the market. The float is total number of shares in the market. This is a tricky statistic because short-sellers are savvy investors. If a large amount of stock is being sold short there is generally a good reason and the stock should be avoided.

However,... short-sellers are human beings too and can become greedy and act in a herd mentality like anyone else. If the amount being sold short is greater than 30% you might consider buying it just for that reason, if the company has no other major flaws. Shorts at 30% or greater can indicate that all the bad news is already priced in. The shorts will have to buy the stock to receive their profit. If the price starts moving up or the company comes out with some good news they will all rush to the exits at once buying stock back to get their profit. This can cause an explosive rise in the stock price and this rise is referred to as a “short-squeeze”. Buying a stock before a short-squeeze can make you a lot of money very fast if you are nimble enough.

Learn about all the information presented in the Yahoo Key Statistics pages by subscribing to PlainLanguagePlace Market News and get a FREE (limited time only) complimentary copy of "Researching Stocks with Yahoo!'. This 45 page instant PDF download is jam-packed with investing tips and strategies with all the Yahoo! Finance Key Statistics, and even the hard-to-understand BOND market, explained in plain language.