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When Should You Buy a Stock?

Jan 29, 2023

Bojan's 3 step Stock Investment Criteria

Investing in the stock market can be a great way to grow your wealth, but it's important to do your due diligence before putting your money into a company. One way to ensure that you're making a wise investment is to use a checklist like BK's 3 step Investment Opportunity Checklist. This checklist is designed to help you evaluate a stock and determine whether it's a good opportunity for you.

 


 

Are you buying stocks of a fundamentally strong business a.k.a great business?

The first step in BK's checklist is to ask whether you're buying stocks of a fundamentally strong business. This means that you're looking for a company that has a solid financial foundation and a strong track record of success.

When evaluating a company's fundamentals, it's important to look at the company's financial statements and other data to determine whether it's a strong business. This includes looking at metrics such as revenue and earnings growth, profitability, and debt levels. Additionally, you should also review the company's management team to ensure that they have a track record of making smart business decisions.

Some of the most important metrics to consider include:

  • Revenue growth: A company that is consistently growing its revenue is more likely to be successful in the long-term. Look for companies that have a track record of strong revenue growth.

  • Earnings growth: Similar to revenue growth, companies that are consistently growing their earnings are more likely to be successful in the long-term. Look for companies that have a track record of strong earnings growth.

  • Profit margins: A company that has a high profit margin is more likely to be profitable and financially stable. Look for companies that have a high profit margin relative to their industry peers.

  • Return on equity (ROE): ROE measures a company's profitability in relation to its shareholder equity. Look for companies that have a high ROE relative to their industry peers.

  • Debt-to-equity ratio: A company that has a low debt-to-equity ratio is less likely to be affected by economic downturns and other risks. Look for companies that have a low debt-to-equity ratio relative to their industry peers.

 


 

Is the stock a good value or cheap or below its intrinsic value?

When determining whether a stock is a good value, you should use a valuation method like discounted cash flow analysis to estimate the stock's intrinsic value. This method involves estimating the company's future cash flows and then discounting them back to their present value. By comparing the stock's current price to its intrinsic value, you can determine whether the stock is undervalued or overvalued. Additionally, it is also good to look at the P/E ratio, P/B ratio and other financial metrics to evaluate whether the stock is cheap or not.

The second step in BK's checklist is to determine whether the stock is a good value or cheap or below its intrinsic value. This means that you're looking for stocks that are trading at a lower price than their true worth. One way to determine a stock's intrinsic value is to use a valuation method like discounted cash flow analysis. This method involves estimating the company's future cash flows and then discounting them back to their present value. The result is an estimate of the stock's intrinsic value. If the stock is trading at a lower price than its intrinsic value, it may be a good opportunity to buy.

When evaluating whether a stock is a good value, one of the best methods to use is discounted cash flow (DCF) analysis. This method involves estimating the company's future cash flows and then discounting them back to their present value. This gives you an estimate of the stock's intrinsic value.

There are several ways to estimate the company's future cash flows. One common method is to use the company's historical financials and make projections based on past trends. It's also important to consider the company's growth potential and any potential risks that could affect its future cash flows.

If the stock is trading at a lower price than its intrinsic value, it may be a good opportunity to buy. Keep in mind that intrinsic value is an estimate and it is always a good idea to compare it with other valuation methods and the industry averages.

 


 

Is now a good time to buy? Is it a good point on entry?

When determining whether now is a good time to buy a stock, technical analysis can be a useful tool. Technical analysis is the study of past market data, primarily price and volume, to identify patterns and make trading decisions.

One important factor to consider when using technical analysis is the stock's current price in relation to key levels of support and resistance. Support levels are price levels where the stock has found buyers in the past and resistance levels are price levels where the stock has found sellers in the past. If the stock is currently trading near a key support level, it may be a good time to buy.

Another factor to consider is whether the stock is oversold or overbought. Oversold stocks are those that have been heavily sold off and may be due for a rebound. Overbought stocks, on the other hand, have been heavily bought and may be due for a pullback.

Another technical indicator is the bullish candle pattern and reversal to uptrend bullish momentum, which is a sign of a bullish reversal. A bullish reversal occurs when a stock that has been in a downtrend starts to move higher and it is a signal that the stock may be ready to rebound.

It is important to remember that technical analysis is not an exact science, and 

it's always a good idea to use it in conjunction with other forms of analysis, such as fundamental analysis and market sentiment, to make more informed investment decisions.

When determining whether now is a good time to buy, it's important to consider both the market's overall trend and the company's specific industry. In terms of the market trend, technical analysis can be a useful tool. This includes looking at charts to identify patterns such as support and resistance levels, overbought and oversold conditions, and bullish and bearish candle patterns. Additionally, you should also look at indicators such as moving averages, relative strength index (RSI) and momentum indicators to determine whether the stock is showing signs of bullish momentum.

It's also important to pay attention to the company's specific industry and the economic conditions. By keeping an eye on the news and analyzing economic indicators, you can get a sense of whether the overall market is healthy or not.

The final step in BK's checklist is to determine whether now is a good time to buy. There are a few things to consider when evaluating whether now is a good time to buy. One important factor is the market's overall trend. If the market is in a bullish trend, it may be a good time to buy, but if it's in a bearish trend, it may be best to wait. Another important factor is the company's specific industry. If the company operates in an industry that is currently doing well, it may be a good time to buy.

 


 

In summary, BK's 3 step Investment Opportunity Checklist is a valuable tool for evaluating potential investment opportunities. By considering the fundamentals of the business, the stock's intrinsic value and the current market conditions, investors can make more informed decisions and increase their chances of success. However, it is always important to do your own research and seek professional advice before making any investment decisions.

 

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