6 Fundamental Factors as a defensive investor

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Golf Defensive Investor

6 Fundamental Factors as a defensive investor

There are many factors to looking for a long term investment strategy in the Stock Market. Some of the factors are like Understanding the business of a Company, Sales and Profit growth and find the competitors in a particular sector.

We have a variety of Fundamental Analysis ratios – Price to Earning, Earning Per Share, Price to Book Value, Cash Flow, Dividend Yield, Debt to Equity, Return on Equity, Return on X or Y and so on.

Benjamin Graham, the father of Value Investing had written a famous book called, ‘ The Intelligent Investor ‘. This book will tells you about the basic steps to choose the shares or Stocks as a Defensive look. Let’s see about them.

Adequate size of the Company:

We can see there are lot of listed companies everywhere in the World Stock Market. Although we have a lot of companies to choose from, it is good to choose stocks which have good annual revenue or sales or you can say the company’s sales is more than USD 100 million in a financial year. So, it is better to pick as per the adequate size on Sales for a Stock.

Strong Financial Trend:

As a defensive investor, one should look out for a Debt free company. Always be wary about Debt to Equity and Working Capital. Working Capital is generally calculated as Current Assets minus Current Liabilities. Stay away from the high debt stocks and follow the companies which have a debt to equity less than 0.5.

Earnings Stability:

Look out a company where the quarterly sales and profit are improving. Continuous growth on Sales and profit will give the investor at Respect with the price.

If there is a decline in sales or profit, find out the reason why it is falling from there. The Company should be profitable through Sales, not by other income alone.

Dividend Track Record:

A Company’s net profits must be at its Share price or the stock must have paid as a Bonus shares. Otherwise, it should paid the profits as Dividend to the Investors. Search for a company which gives a continuous Dividend payments – Good Dividend yield on Long track record.

Earnings Growth and Price to Earnings:

Earnings per share and Price to Earnings are the key factor for any stock that implies with its revenue in a longer period. Lookout for a better EPS series for at least the 10 years. Price to Earnings should not be more than on its Industry and Indices benchmark. Compare the Price to Earnings with the Peer Companies.

One should not isolate the Price to Earnings (P/E), it should be combined with the Revenue of a Company.

Price to Assets Ratio:

Generally, the current market price should not be more than 1.5 times of its book value. However a multiplier of earnings below 15 could justify a corresponding higher multiplier of Assets.

As a rule thumb, the share of the multiplier times the ratio of price to book value should not exceed 22.5 (15 X 1.5 times). Find out other assets like Return on Assets (ROA). 

If an investor follow these parameters we have said above, there will be a growth of the share of an Enterprise.

Kindly share your views / comments with a smile 🙂

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