Love at first sight

What are the initial factors that make you like a company?

Is it the sales growth? And you decide to dig deeper only after sales growth qualifies some standards?

I am too much of a newbie. Please bear with me.

•Sales growth > 15-18%
•Predictability/Visibility - 5-10 years
•Debt/Equity - zero to 0.2
•Moat - Perceivable
•ROCE > 20%
•High OPM

Love at first sight if it has a negative working capital

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How many years of backtracking needed for the above figures?

Its stock specific. Longer the better.
But future predictability/visibility/sustainability of the numbers matters more.

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1.Predictability/Visibility

Please explain what is meant by Predictability/Visibility. And how to gather the data for a particular company.

2.Moat - Again, how to gather information for a co.

Investing books can help you to gain knowledge on it.

Pat Dorsey’s -The Five Rules for Successful Stock Investing
Peter Lynch’s- One up on wall street

For more reading ,pls check VP book suggestions.

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Predictability/Visibility

“A2Z Maintenance bags orders of Rs 3,300 crore.” This info tells the reader that the company is more or less guaranteed to earn money in near future.

Questions.

  1. Is this a perfect example of Predictability/Visibility ?
  2. Apart from securing large orders, what else improves visibility/predictability ?

3. Moat & Visibility - There is no need to worry about visibility once a rock solid moat has been spotted.A moat guarantees future earnings(and hence visibility).If there is a solid moat,visibility comes free along with it. Please correct me if I am wrong.

And thank you Lynchfan for those books

StockChecklist.xlsx (16.3 KB)

I am trying to use this. This is summarized from
“Warren Buffett and the Interpretation of Financial Statements” by David Clark and Mary Buffett.

I am still a long way from practicing as captured here. Would welcome suggestion from others.

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Professor on negative working capital - Float

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@Lynchfan

Please consider the following excerpt from One up on wall street

There are 5 ways to increase earnings

  • reduce costs
  • raise prices
  • expand into new markets
  • sell more in old markets
  • revitalize,close or dispose losing operations

Query
What is meant by “expand into new markets”?(a) Is it selling the already existing products in new territories?
(b)Or is it selling Newly developed products in old as well as new territories?

Thanks

Take the example of Vgaurd industries.
A) The main market for vguard is the southern 4 states. For it’ new markets ’ means the northern states. When it sells its existing products in north India, by setting up new distributors, its earnings increases.
B) Vguard sells electrical goods like stabilizers, water heaters, wires & cables. When it manufactures and sells new products like kitchen appliances, using its existing distribution network, that too increases the earnings.

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So both are applicable.correct?

Yes, both of them are applicable.

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I forgot to ask you in my earlier post.

Out of several kinds of moats(I guess Peter Lynch terms moats as ‘Niches’), the most powerful one is production of a “valuable” product and that competitors are not in a position to manufacture the same. This is the ‘widest of the wide moats’.

Am I correct?

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@Lynchfan

Finally I have summarized the entire idea of analysis:

1. A company has to make lots of money. This is achieved by:

  • A company must produce good(s) that provide high values to the customer
  • The good(s) must continue to be valuable in future
  • The company has to be the sole producer of that good(s) (MOAT)
  • The entire process accelerates if the company expands.

2. It has got to accumulate that earned money. This is achieved by minimizing expenses, which in turn are of two types-normal/regular and capital.

  • Capital Expenses Companies that depend on technologies have to do lot of capital spending and R&D.
    Normal/regular Excessive debt burden forces to pay interests. This is the most perceivable regular expense.

3. To achieve the above two, it must have the necessities for its survival (abundant cash)

I think I have got the entire idea in proper place.What do you have to say?

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Slight refinement:

Point #1, which is- [quote=“ricky_, post:17, topic:4361”]1. A company has to make lots of money.[/quote].This alone will make sure that everything else will take care of itself.

Seniors, please correct me if I am wrong.

Which in turn means we will need to focus on

  • current and future uniqueness of its products
  • why others will not be in a position to manufacture those goods in future
  • how much expansion is possible in future…

Thats all
Hats off to me :stuck_out_tongue: