15 Essential Factors for Evaluating a Stock: Philip Fisher's Investment Checklist

Retail investors are now looking at IPOs with a 'shareholder' category to improve their chances of getting allotments. Owning even one share of the parent company allows investors to apply under both retail and shareholder categories, increasing their chances. Here's a breakdown of recent and upcoming IPOs to watch:

Sat Oct 26, 2024

15 points from Philip Fisher

Investing in stocks can be both exciting and nerve-wracking. Philip Fisher, a pioneer of growthinvesting, offers us a timeless guide on how to evaluate a company before making any investment. His 15 points, outlined in ‘Common Stocks and Uncommon Profits,’ give a clear, thorough approach to what makes a company worth investing in. Here’s a simplified checklist that will help you determine whether a company is truly an investment opportunity, alongside key pointers on when to buy and sell your stocks.

What to buy

Market potential

Does the company have products or services with the potential for significant growth in sales over several years? Long-term success often comes from companies that can maintain and grow their market presence.

Innovation continuity

Is management committed to developing new products or processes as current growth opportunities are exhausted?Look for companies with a forward-thinking approach to R&D and product development.

R&D effectiveness

How effective is the company’s research and development? High-performing companies tend to maximise the benefits of their R&D, turning innovation into profitability.

Sales organisation

Does the company have a strong sales and distribution network? Without an effective sales structure, even the best products won’t reach their full potential

Profit margins

Are the company’s profit margins satisfactory? You want a business that not only generates sales but turns them into strong profits.

Profit margin improvement

What is the company doing to maintain orimprove profit margins? Successful companies continually look for ways to improve efficiency and cut costs.

Employee relations

Are labour relations solid? Companies with happy and productive employees are often more stable and profitable in the long term.

Executive relations

How strong is the relationship between management and executives? A collaborative, trust-filled environment often leads to better decision-making and corporate success.

Depth of management

Does the company have depth in management? It’s important that leadership isn’t concentrated in a single individual but spread among a capable team.

Cost controls

Does the company have good accounting and cost controls? Efficient cost management is key to profitability.

Industry-specific advantages

Are there unique factors in the company’s industry that set it apart? Strong patents, lower insurance costs, or innovative technology can give a company a valuable edge.

Long-term outlook

Does the company prioritise long-term over short-term profits? Companies that reinvest in themselves and their relationships with customers and suppliers usually perform better over time.

Financing for growth

Will the company need significant equity financing that could dilute shareholder value? Ensure the company’s growth plans won’t require so much new capital that your stake becomes less valuable.

Transparency

Does the company communicate openly with investors, especially during tough times? Honest and transparent communication is a hallmark of good management.

Integrity of management

Finally, does the company have a management team with unquestionable integrity? Without ethical leadership, even the most profitable company can falter.

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Rajasekar
A California-based travel writer, lover of food, oceans, and nature.