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Five Criteria For Choosing A Good Stock

2010/11/25 16:02:00 67

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First, the P / E ratio should be low.

If a company

Price of stock

It is 30 yuan, the annual earnings per share is 1 yuan, and the P / E ratio is 30/1=30.

If we do not consider compound growth, it will take 30 years to recover theoretically.

Investment

(that is, doubling your investment).

Is the P / E ratio reasonable? Generally speaking, it is compared with the current bank's one year deposit rate.

interest rate

For 4%, the corresponding P / E ratio is 1/0.04=25.

It means that you deposit 1 yuan to the bank, every year the bank gives you 0.04 yuan interest rate, after 25 years, your interest sum is 25 * 0.04=1 yuan, plus the original 1 yuan, you have 2 yuan.

If you don't consider the growth of the company, you can only invest 1 yuan in the company every year for only 1/30=0.033 yuan.

Two, profitability is growing well.

If the company's profitability does not increase, as mentioned above, if you invest 1 yuan in the company, you can only earn 0.033 yuan a year, so you may as well deposit your money in the bank.

But if the company's annual profitability can grow at a rate of 50%, it can be calculated again whether the company's 30 times price earnings ratio stock is worth buying.

Take investment in the company's 1 shares (30 yuan) as an example.

The first year can earn 1 yuan (1 yuan per share).

Second years can earn 1.5 yuan (earnings per share 1 x (1+50%) =1.5 yuan).

Third years can earn 2.25 yuan (earnings per share 1.5 x (1+50%) =2.25 yuan).

Fourth years can earn 3.375 yuan (earnings per share 2.25 x (1+50%) =3.375 yuan).

As can be seen from the above, the company's second year earnings ratio has been 30/1.5=20 times, third years only 30/2.25=13 times.

So if the company's annual profitability grows at a rate of 50%, even though the current P / E ratio is 30 times, in the next few years, the profit is far greater than the interest paid to the bank.

That is why some companies currently have a P / E ratio of up to 100 and the stock price will not fall.

Three, cash dividends.

If the company analyzed above has the same two, profitability will grow at a rate of 50%. One of them will distribute profits to everyone every year.

Four, asset injection and restructuring.

If asset injection or reorganization can improve the profitability of enterprises and increase net assets, such companies deserve attention.

Five, the stock issue.

It only reduces the price per share, increases the liquidity of the stock (the price is low, the same stock does not need so much money, it is convenient for everyone to buy and sell), and it can not be used as the standard of stock selection.