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My “Great Eight” Fundamental Variables for Stock Analysis

These metrics are a significant part of my investing formula

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#7 Operating Margin Growth: Making profits is all about the margin—the difference between production costs and the retail price. A company that’s able to expand its operating margins is usually a company that has a dominant position in its industry. This company can raise prices without seeing a drop-off in sales. That’s a nice place to be. But if a company has to keep cutting prices to entice reluctant buyers, it’s not a good sign.

#8 Return on Equity: This is one of my gold standards. In simple terms, Return on Equity is the amount of profits a company generates with the money shareholders have invested. ROE tells me how efficiently a company is managing its resources. I can’t interview every senior manager at a company, so I like to think of ROE as a report card for management.

To check out a company’s Return on Equity, simply take a business’s net income and divide that by the amount of money shareholders own in common stock. If a company is run well, its net income will dramatically outpace what investors have pumped into it. If a company is lazy or poorly run, the value of shares investors own will be more than the profits the company actually produces.

These eight fundamental variables will help you get to the real facts that will make you money in all markets and at all times. The only way to profit in this market is to take a hard look at the numbers behind the stocks so you can invest in the biggest, strongest companies that will emerge from bear markets stronger than they were before.

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