Cheat-Sheet with preset for various Trading Scenarious
Generic recommendations for trading scenarious as example for Average Volume, Market Cap, Price and Age/IPO.
Generic Recommendations
- Average Volume > 100,000 (> 1,000,000 for Options)
The average daily traded shares over the past 3 months should be larger than 100,000. This lowers the spread and makes it easier to find a seller/buyer in time. - Market Cap > $500 million (> $1000 million for Options)
Nano cap stocks should be excluded to make sure that the share price cant be manipulated with pump and dump schemes. - Price > $7
Penny stocks should be excluded due to possible information issues and manipulation of these stocks. - Age > 2 years
At least two fiscal years or 8 quarters of fundamental data (balance-, income- and cash-flow sheets) should be available for research.
True Value / Questions
- ROIC > 15%
- Profit Margin > 10%
- Revenue growth > 5%
- Profit growth > 7%
- 5y EPS growth > 8%
- FCF / earnings > 80%
- Net debt / EBITDA < 2
- Net debt / FCFF < 5
- Debt / Equity < 80%
- RoIC > WACC
- How (this) company could loose? (make money by not loosing: take the opposite position and evaluate the risks, not just the chances)
How to identify a Compounding Machine in the earning sheets?
Business
- Low volatility of margins
(todo) - Pricing power
(todo> - Low Capital Intensity
CAPEX/Sales < 5% and CAPEX/Operational Cash Flow < 15% - Cash Flow Returns on investment (CFROI)
(todo)
- Skin in the Game
Owner & Family > 20% of shares
How to identify a Compounding Machine, if its not in the earning sheets?
Business
- Moat
Sustainable, high Return on Invested Capital (ROIC > WACC)
by recurring revenues, high gross margins and low capital intensity - Pricing Power
Best CAPEX/Sales in Peer-Group
- Pattern of disciplined Reinvestments
- Extensive opportunities to reinvest
Reinvest for organic growth (ROIC > 20%)
Acquisitions (M&A)
Share buybacks
Dividends (in the absence of value creating alternatives)
How to analyze a stock
Understand the product
- Annual Reports
- Investor Presentations, Shareholder Letters
- In which different segments does the company make money
- How does the geographical split look like
- Which Insiders are buying their own stock
- Check ROIC curve of the last 10 Years
- CAPEX/Sales < 5%
- CAPEX/Operating Cash Flow < 15%
- Interest Coverage Ratio (EBIT/Interest payments) > 10
- Net Debt / Free Cash Flow < 4
- Gross margin > 30
- FCF margin > 20
- Yearly revenue growth > 5%
- Yearly earnings growth > 7%
- Secular trend (urbanization, aging, cybersecurity, obesity, digital payments, …)