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10 Fundamental Metrics How to Choose the Best Stocks Part 2

10 Fundamental Metrics How to Choose the Best Stocks Part 2

Here we continue listing down the 10 fundamental metrics we can use to choose the best stocks.

You can read the previous post here.

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In the previous posts we have EPS, PE ratio, PEG ratio, ROE and ROA.

Now we finalize the list with the other 5 metrics we can profit potential of the stocks.

  • Relative Price Strength (RPS)

Definition:

Ratio of the price performance of stock relative to price performance of an index

Interpretation:

Here we measure how the stock performs relative to an index.

Recommended value for RPS is at least 70.

According to Christian Bayonne, avoid stocks with an RPS of below 50 or stocks with drop in RPS by 20%. 

  • Cashflow 

Definition:

No, we are not talking about Cashflow 101 by Robert Kiyosaki.

We are simply talking about the company’s amount of money going into and out of its bank accounts.

Interpretation:

A positive cashflow means that the company would be able to pay its short term bills.

Recommended value for this metric is cashflow exceeding net income (this means that the company has cash reserves and does not rely entirely on revenues for cashflow activities).

  • Financial Leverage Ratio (F/L Ratio) 

Definition:

This is actually a measure of how indebted the company is.

Calculation:

Total assets/equity

Interpretation:

An F/L or 1 means no debt.

Recommended value for this metric is less than 5.

  • Consensus Earnings Forecast (CEF)

Definition:

Average of analysts’ forecast

Interpretation:

Negative forecast can drag price down. Better avoid these stocks.

  • Institutional Ownership 

Definition:

Mutual funds, banks, pension funds and other big companies buy stocks too to grow their money. This is in layman’s terms riding along the choice of other institutions.

Interpretation:

Buy stocks with about 30% institutional ownership.

If you notice, most if not all of the metrics mentioned can be found in your online stockbroker’s research page. Some are quite difficult data to obtain – so leave it to the researchers to do their job.

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