There are a lot of different ways to analyze a stock. For example, you can focus on the stock’s price movement from one period of time to another, over time, to identify patterns and likely reversal points. You can pay attention to the flow of supply and demand for a company’s shares in the marketplace to determine whether buying or selling exerts more influence on the stock’s price direction. You can expand your view to focus on the market as a whole to try to determine whether investors are generally buying stocks in one industry over others right now, or use global, national and regional economic data to help measure the overall health of the market.
There is value in all of these methods, but we believe that the proper place to begin your analysis is by looking at the business that underlies the stock you’re considering for an investment. This is a process generally known as fundamental analysis, because it focuses on what the company is doing, week by week, month by month, quarter by quarter, and year by year, to generate revenue, manage costs, forge a profit, and find ways to expand the business.
Earnings and revenues are perhaps the two most basic elements of fundamental analysis. They are naturally among the first things that any investor should make sure to pay attention to.
Revenues are the lifeblood of a healthy business; if it isn’t making sales, it can’t pay its bills. Earnings are simply the profits that are left over after a company has met all of its capital obligations. One of the mistakes about analyzing these items that a lot of people make, however, is whether a stock’s latest earnings announcement met, exceeded, or failed to meet the market’s expectations. From our perspective, that’s a little bit like a child looking at the pile of presents she got for Christmas and saying, “is that all there is?”
I believe that the most important aspect of a company’s earnings and revenues reports comes in the pattern they establish over time. SEC regulations require that stocks listed on U.S. exchanges report quarterly and annual results. Financial websites like reuters.com, finance.yahoo.com, and others, compile these results and make them easy for any investor to review and analyze.
Under ideal circumstances, both earnings and revenues should be seen to increase on both a quarterly and annual basis. I also prefer to see earnings growing slightly faster than revenues as an indication the company maintains strict cost controls. Keep in mind, however, that deviations from the ideal are not always indications of problems, but should be used to help generate questions and dig deeper for more insight. One of the most common examples of this is when revenues grow over a period of time, but earnings do not. Increasing revenues are a positive, but the fact the company failed to increase profits as well could be attributed to several factors. Has management failed to contain spending properly, or are they perhaps investing in research, development or acquisitions that have temporarily curbed their profit profile? Earnings and Revenue Growth is an excellent way to judge that.
There is value in all of these methods, but we believe that the proper place to begin your analysis is by looking at the business that underlies the stock you’re considering for an investment. This is a process generally known as fundamental analysis, because it focuses on what the company is doing, week by week, month by month, quarter by quarter, and year by year, to generate revenue, manage costs, forge a profit, and find ways to expand the business.
Earnings and revenues are perhaps the two most basic elements of fundamental analysis. They are naturally among the first things that any investor should make sure to pay attention to.
Revenues are the lifeblood of a healthy business; if it isn’t making sales, it can’t pay its bills. Earnings are simply the profits that are left over after a company has met all of its capital obligations. One of the mistakes about analyzing these items that a lot of people make, however, is whether a stock’s latest earnings announcement met, exceeded, or failed to meet the market’s expectations. From our perspective, that’s a little bit like a child looking at the pile of presents she got for Christmas and saying, “is that all there is?”
I believe that the most important aspect of a company’s earnings and revenues reports comes in the pattern they establish over time. SEC regulations require that stocks listed on U.S. exchanges report quarterly and annual results. Financial websites like reuters.com, finance.yahoo.com, and others, compile these results and make them easy for any investor to review and analyze.
Under ideal circumstances, both earnings and revenues should be seen to increase on both a quarterly and annual basis. I also prefer to see earnings growing slightly faster than revenues as an indication the company maintains strict cost controls. Keep in mind, however, that deviations from the ideal are not always indications of problems, but should be used to help generate questions and dig deeper for more insight. One of the most common examples of this is when revenues grow over a period of time, but earnings do not. Increasing revenues are a positive, but the fact the company failed to increase profits as well could be attributed to several factors. Has management failed to contain spending properly, or are they perhaps investing in research, development or acquisitions that have temporarily curbed their profit profile? Earnings and Revenue Growth is an excellent way to judge that.
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