Reading 2021-12-28


Notes from reading

Common metrics:

  • Earnings per share (EPS)
    • The higher a company’s EPS, the more profitable it is considered and companies that have a track record of growing their EPS each year are highly regarded
  • Price-to-earnings ratio (P/E)
    • the relationship between a company’s stock price and its earnings
    • giving investors a good idea of what the market is willing to pay for the company’s potential earnings
    • A high P/E number generally suggests investors see high growth potential, but it is not considered a reliable standalone metric
    • use P/E ratios to compare companies within the same industry or sector
  • Net Tangible Assets
    • useful metric for evaluating a company’s future profitability, especially in capital intensive industries
    • This metric net tangible asset per share of common stock allows investors to focus on a company’s physical assets in isolation
  • Price-to-book ratio (P/B)
    • gives an indicator of how fairly priced – cheap or expensive – a share is at any given time
    • The book value of a company is a more conservative view of its value, as it simply looks at the difference between the balance sheet assets and balance sheet liabilities
    • The P/B ratio is of particular interest to value investors who like to invest in companies with a market value less than its book value with the expectation that the market perception will turn out to be wrong

Common investment frameworks:

  • consider the threat of competitors or new entrants, especially in industries vulnerable to disruption; the bargaining power of buyers or suppliers; and whether a product or service is curtailed or enhanced by the COVID-19 pandemic
  • three Cs (Company, Competitors, Customers); the four Ps (Product, Price, Promotion, Placement); and SWOT analysis (Strengths, Weaknesses, Opportunities, Threats)

Keep asking and answering a set of generic questions:

  • How does the company make money?
  • Does this company have a competitive advantage?
  • How good is the management team?
  • What could go wrong?