As retail investor and institutional investor many will be thinking how to select specific company stock/shares for purchase. What is the ideal criteria for stock selection? Among hundreds of listed companies, what factors can be considered for specific company stock selection? Like this we will be getting thoughts during investments. First let us see, elimination criteria.

Reasons to Reject a Specific Stock: Following are the some of the reasons based on which you can reject a specific company stock to purchase:

  • Stock Price Growth Graph – Bad: The long term graphs is showing organic growth. All of the sudden zoomed up; Graph is exhibiting only one trend: went up and headed towards down continuously. During IPO, very high value, later on graph headed towards downwards. In these cases, one can reject specific stock.
  • There was an accounting fraud. Organizational reputation went down;
  • Year on Year (Y-o-Y) revenues/sales/profit figures headed downwards (last 5 years)
  • No single reputed mutual fund house holds this specific stock
  • No bonus/split shares in the past (in entire organizational history)
  • No dividends in last 3 years
  • Too high share price for your affordability; over-valued stock price.
  • Reducing sales; increasing expenditure (last 5 years)
  • Too high debt (more than 40% to 50% of net worth of company); – (it may not be able to recover from debt in long term)
  • That specific Industry is facing turbulent weather
  • Struggling financials/profits; profits are presented/adjusted based on using only the skill of financial accounting.
  • Organizational debt is more than 1 year annual revenue of company
  • Sentiment in the market is not good
  • Market capitalization of the specific company is very low
  • No consistency in stock price/too much volatility

Reasons to Select a Specific Stock: Now, let’s see selection criteria. Following are some of the reasons to select a specific company stock to purchase:

  • Stock Price Graph – Sustainable: The long term graph is showing continuous/sustainable growth. In the growth graph, there is a pattern of down/again up; down/up , etc. showing an incremental/overall That is organization is went down and bounced back. It is a continuous learning and improving organization.
  • In the past, there were bonus/split shares issue; frequent bonus/splits;
  • Regular dividends are paid
  • Organizational debt is less than 10% of net worth of company
  • Last 5 years sales/profits increasing/upward direction; turnaround in last 5 years revenue is also a good sign. It has bounced back.
  • Organizational debt gradually reducing, showing turnaround and revenues growing.
  • Promoters have more than 55% stake in the company.
  • Organizational Loans are less than < (Current Balance + Inventory)
  • Likely bonus shares/split issues in pipeline; future mergers and acquisitions;
  • Specific industry is zooming
  • Then it is a potential stock to invest.

Usually a stock is selected for purchase/rejected based on multiple factors (more than one factor). One single factor will trigger you towards the decision.

Happy reading!!!

Dr.Goparaju Purna Sudhakar

 (Note: These are only my research outcomes; it is only for learning purpose; one may decide what is good for them.)


One thought on “Industry Insight: Basis for Stock Selection/Rejection …… Dr.Goparaju Purna Sudhakar”

  • GeorgeniX says :

    Amazing website, how do u get all this information?I have read a few posts on your site and I really enjoy your writing style. Thanks a million, keep up the good work.

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