There are couple of lessons here, which will explain the basic nature of stocks and selection criterion to become successful in wealth creation
Earnings: The Most Indispensable Element of Great value Stocks
Various researches have been conducted by many scholars and it has been well proved that earnings growth is single most important factor to indicate potential significant move in the price of a stock.
While going through this page you will learn as to why earnings is considered as most important element of wonderful stocks.
Earnings: Why it’s so important
I am sure you all must have noticed the wealth created by significant movement of specific stocks such as Vinati Organics, Yes Bank, Dhanuka, Suven Life Sciences and many more. Before all these stocks mived so high and created 100%; 200%, 300% or more wealth there were very clear signals before any movement.Interestingly studies have established about couple of factors responsible for stocks movement to a greater extent and Earnings is the single largest factor. When people studied the great stocks they observed that three out of four companies had average earnings increase of about 70% in specific quarter before big up move happened.
Interestingly 75% of these stocks showed positive annual growth rate, again consistently over preceding four years before any major price move.
Earnings: What is this?
It is also known as Net Income or net profits and net profits are derived after payment of all the obligations and taxes to the government. Normally companies publish their quarterly results in MAR, JUN, SEPT and DEC, there may be a few exceptions to it.
Earning per share is also known as EPS and is calculated by diving total earnings by number of equity shares of a company.
The EPS is most important for the owner of the business and in our case its investor who is invensting his or her money in that company.
Another important and interesting property of fast growing stocks is that the earnings accelerate over the previous three or four quarters. Thus acceleration represents an increase in the earning growth rate over quarters.
The bottom line growth always precedes with strong upward movement in the price of a stock. Interestingly the just increase in earning does not make the stock good, its equally important that market and professional investors also notice same and basis which there would a spurt and big move in the price.
Earnings: What to look at
• Quarterly earnings-per-share growth – min 25% over the same quarter the year before.
• Preferably, accelerating earnings in the three most recent quarters.
• Annual earnings-per-share gains of min 25% over the past three years.
The 25% is min bench mark and the higher is always better. Good companies with strong management and product lines do deliver these numbers and become multi-baggers.
So, Here’s What You Want To Look For When Researching Your Stocks:
Watching For Traps
Key Points to Remember