HOW TO IDENTIFY A BAD STOCK? | மோசமான பங்குகளை எவ்வாறு அடையாளம் காண்பது

 

HOW TO IDENTIFY A BAD STOCK?

Let me tell you a small story. When I was a kid while studying my 5th grade, My father came for one of my Parent-Teacher meetings and my teacher complained about my performance in the exams. She told my father that I lacked concentration in my studies, I was too sportive and naughty. My performance was bad in daily tests, etc... After hearing this, My dad was mad at me and he stopped gifting me toys and stopped buying me chocolates. I was so upset and I felt very bad about my behavior and performance. That was one of the worst experiences of my life.

Likewise, In the stock market, If the performance of the company or the behavior of the company is bad, People won't like to invest in the company. In this post, we are going to see what are all the factors that help us identify a bad stock in the market.

FACTORS TO IDENTIFY A BAD STOCK:

1. High Debts
2. Low Return on Investment [ROI]
3. Fewer Promoter Holdings
4. Decreasing Profits
5. Decreasing Earnings Per Share [EPS]
6. High Price to Earning Ratio [P/E]

1. HIGH DEBTS:

A company with an increasing number of debts every year is a bad indicator of the company's growth. High debts affect the performance of the company. If the company doesn't find a way to repay its debts then it will affect the stock price of the company.

Example: Yes Bank Ltd 

2. LOW RETURN ON INVESTMENT [ROI]:

Return on investment (ROI) is a popular metric used to measure the success of an investment. 

ROI = (Current Value of Investment−Cost of Investment) / Cost of Investment

A company with Low ROI is expected to produce low profit and poor sales in their product.

Example: Just Dial

3. FEWER PROMOTER HOLDINGS:

Promoters are the owners of the company. If the holding percentage of promoters is decreasing then it indicates poor performance and improper management of a company. It may lead to a decline in the share price of the company.

Example: Zee Entertainment Enterprises Ltd

4. DECREASING PROFITS:

If a company is continuously delivering poor quarterly results, poor sales, and less profits, people will have a bad impression of the company and won't like to invest in the company. 

Improper utilization of resources and poor management of sales are a few causes of the decrease in sales.

Example: Adani Transmission

5. DECREASING EARNINGS PER SHARE [EPS]:

EPS is calculated by dividing the net profit of a company by the number of outstanding shares the company has.

EPS = Net Profit of the company / No. of Outstanding shares

The higher the earnings per share of a company, the better its profitability. If there is a decrease in EPS then the profit also declines.

Example: Ashok Leyland Ltd

6. HIGH PRICE TO EARNING RATIO [P/E]:

P/E is obtained by dividing the current share price of the company by its EPS (Earnings per share).

P/E Ratio = Current share price of the company / EPS

A higher P/E ratio may indicate that the stock is over-valued. At the same time, a lower P/E ratio indicates the stock is undervalued.  A good P/E ratio for a company should be in the range of 15 - 25. But It may vary according to different sectors.

A steep increase in P/E Ratio is a poor indicator for a company. It denotes the overvalued performance of a company.

Example: Adani Wilmar

Remember the story I told you initially?. My father failed to believe me due to my poor performance at school. But I tried to change it and I studied hard and performed well in 6th grade. And that's how I regained the chocolates and toys I missed. And Most importantly I regained the belief that my father had in me. 

Likewise, Once a Bad stock will not be a bad stock in time. every company will go through some hard phases in its lifetime. If the company can able to bounce bad stronger with good results, It will definitely gain the attention of the investors.

So that's all with this post, See you all in the next post, until then, "Happy Investing".

DISCLAIMER:-

The content of this site is only for educational purpose. I am not SEBI Registered. The motive of this site is to share my knowledge on share market to new budding investors and others who are learning about stock market

My Kind request to my site viewers, Before taking any decision please do self analysis, consult or discuss with Your financial Advisor .

மறுப்பு:-

இந்த தளத்தின் உள்ளடக்கம் கல்வி நோக்கத்திற்காக மட்டுமே. நான் செபியில் பதிவு செய்யப்படவில்லை. இந்த தளத்தின் நோக்கம், பங்குச் சந்தையைப் பற்றிய எனது அறிவை புதிய வளரும் முதலீட்டாளர்கள் மற்றும் பங்குச் சந்தையைப் பற்றி அறிந்துகொள்ளும் மற்றவர்களுக்குப் பகிர்வதாகும்

எனது தள பார்வையாளர்களுக்கு எனது அன்பான வேண்டுகோள், எந்தவொரு முடிவையும் எடுப்பதற்கு முன், சுய பகுப்பாய்வு செய்யுங்கள், ஆலோசனை செய்யுங்கள் அல்லது உங்கள் நிதி ஆலோசகருடன் விவாதிக்கவும்.