If you have been paying attention, you know I like to talk about investing and money. I wanted to share my checklist that I have been creating for the past three or so years.
I keep updating it now and then.
- What are companies 20% of products that produce 80% of revenues? Use First-principles thinking.
- Repeat Customers?
- Strong Brand?
- Marginal utility of the product. Does it decrease with repeated use?
- Are the products irreversible (like shrimp or rice) or can it be recycled like steel and aluminum
- Working capital requirement?
- Does business depend on subsidies( Sugar, Textiles, etc.), if so, avoid them
- Sectoral Headwinds/tailwinds
- Total Addressable Market
- Multi-year growth?
- Does the company need macro numbers to grow?
- Can expand internationally
- Recurring revenue source?
- Low fixed cost
- Relationship between revenues and fixed costs
- Any government Moat
- Are products real?
- Creative Accounting detected? Look at the C-Modified Score.
- Is there any evidence of pump and dump price action?
- Shareholding pattern - Look at the last 5-7 years to see how it has changed? Compare it to price action to detect any pump and dump action.
- DCF if applicable
- Compare with historic PE (ignore for high growth)
- Earnings yield
- Dividend yield
- Compare the above 3 with competitors
- Has price risen recently, and if you want to buy it still?
- Where did you hear about it?
- Technicals - well above 20 DMA, Check for weekly and monthly trend lines
Valuation is more art than science. There are some factors that I weigh more than others, depending on the company.