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Analyzing Stocks for Advanced Traders Using other Factors
Revenue-based indicators are excellent tools to gauge a company's performance. However, instances when some companies have little or no income don't necessarily mean that these are bad investment outright. After all, even colossal Microsoft went through this no-income phase once, so it might be necessary to look into companies worthy of consideration but one should do so with caution.
Aside from using indicators that are derived from a company's earnings and earning growth projections, stock traders also use financial data from other sources. These include price to sales ratio, price to book ratio (P/B), book value and accounts receivables growth to sales growth ratio, among others.
The price to sales ratio (P/S) examines the current stock price relative to the total sales per share. Computed by dividing the current stock price by the sales per share, the P/S shows what value the market places on stock sales (as opposed to P/E ratio which reflect what value the market gives on the company's revenues). Traders traditionally believe that a lower P/S equates to better value, but this figure should not be taken by itself as it does not answer all questions on the soundness of the company under scrutiny.
Another ratio commonly used particularly by value investors is the price to book ratio (P/B). Similar with P/E and P/S in the sense that is measures what value the market places on the ratio’s denominator, this time the metric measures how the market sees the book value of a company. The P/B is derived by taking the current price per share and dividing by the book value per share and just P/E and P/S, a low P/B means better value.
Value investors are fond of this tool as it enables them to find stocks that are often overlooked (and undervalued), which they buy and hold as long-term investments, until the stock is noticed by analysts causing its price to soar. Value investors commonly earn hefty sums using this strategy.
The book value of a company is another good measure of its financial soundness. The book value is simply derived by subtracting all company liabilities from its assets (this can be gleaned in the balance statements that are released annually). In other words, how much money will remain with the company if all its assets are monetized and all its outstanding obligations paid. Typically, healthy businesses are worth more than their book values because they generate earnings and growth.
As earlier discussed, book value is an important tool to value investors who look at its relationship to the stock's price. Other traders use book value per share ratio, which is simply the book value divided by the number of outstanding shares. This ratio is often used to compare companies in the same industry.
Some traders also look closely on the growth of the company's accounts receivables compared to its sales growth (accounts receivables are monies owed to the company by customers for goods received). Usually measured per quarter, it is compared to figures for the same quarter for the previous year and any substantially increase is taken as a warning of future problems.
Aside from using indicators that are derived from a company's earnings and earning growth projections, stock traders also use financial data from other sources. These include price to sales ratio, price to book ratio (P/B), book value and accounts receivables growth to sales growth ratio, among others.
The price to sales ratio (P/S) examines the current stock price relative to the total sales per share. Computed by dividing the current stock price by the sales per share, the P/S shows what value the market places on stock sales (as opposed to P/E ratio which reflect what value the market gives on the company's revenues). Traders traditionally believe that a lower P/S equates to better value, but this figure should not be taken by itself as it does not answer all questions on the soundness of the company under scrutiny.
Another ratio commonly used particularly by value investors is the price to book ratio (P/B). Similar with P/E and P/S in the sense that is measures what value the market places on the ratio’s denominator, this time the metric measures how the market sees the book value of a company. The P/B is derived by taking the current price per share and dividing by the book value per share and just P/E and P/S, a low P/B means better value.
Value investors are fond of this tool as it enables them to find stocks that are often overlooked (and undervalued), which they buy and hold as long-term investments, until the stock is noticed by analysts causing its price to soar. Value investors commonly earn hefty sums using this strategy.
The book value of a company is another good measure of its financial soundness. The book value is simply derived by subtracting all company liabilities from its assets (this can be gleaned in the balance statements that are released annually). In other words, how much money will remain with the company if all its assets are monetized and all its outstanding obligations paid. Typically, healthy businesses are worth more than their book values because they generate earnings and growth.
As earlier discussed, book value is an important tool to value investors who look at its relationship to the stock's price. Other traders use book value per share ratio, which is simply the book value divided by the number of outstanding shares. This ratio is often used to compare companies in the same industry.
Some traders also look closely on the growth of the company's accounts receivables compared to its sales growth (accounts receivables are monies owed to the company by customers for goods received). Usually measured per quarter, it is compared to figures for the same quarter for the previous year and any substantially increase is taken as a warning of future problems.
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