Things to check before buying a share for long term

A lot of Investors generally tend to buy shares for long term to get multifold returns. But how do we check if a particular company is good or not for investment. Below i am highlighting few things which should always be analyzed before taking an investment decision. This will not only help you to buy good stocks but will also help you in avoiding bad stocks.

1. Does the company have good fundamentals ?

a. Earning per share – increasing for last 5 years

b. Price to earnings – low compared to companies in the same industry

c. Price to book ratio- low compared companies in the same industry

d. Debt equity ratio – should be less than 1

e. Return on equity – should be greater than 20%

f. Current ratio – should be greater than 1

g. Dividend yield – increasing for the last 5 years

 

2. Do you understand the products or services offered by the company?

a. Understand the company first ,learn about its products and services.

 

3. Will people still by using the product or service in 15- 20 years from now?

a. Always look for the company with long life , such companies have huge growth potential and the power of compounding applies to such companies.

 

4. Does the company have a low cost durable competitive advantage?

 

5. What is the company doing that its competitors are not?

a. Find the unique selling point of the company , learn what this company is doing which it’s competitors are not.

 

6. What is the debt levels of the company. is it decreasing on annual basis.

 

7. Invest only in business which you understand !

Before entering in stock market, first learn more about stock market basics, fundamentals, technicals, strategies, and many more…

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