So how do you put all this together and find high-potential investments?
Even with a ‘perfect’ screening system, you will inevitably be left with stocks that go nowhere… or even down.
Your goal shouldn’t be to just pick stocks at random off your list but to use the list as a guideline for further research.
All of the metrics we used should not be used in isolation.
Be prepared to dig even deeper: now that you have compared the companies with their competitors and industry standards, you will want to look for market catalysts and industry trends.
These can be good indicators of which stocks on your list could outperform others.
Always keep in mind that share investing is an inherently risky undertaking.
There is always the possibility that you’ll lose any money you invest in any stock on the ASX. And remember that past performance is not an indicator of future success.
So, to recap…
Some metrics you can consider using to assess whether a company is worth investing in are:
- Market Capitalisation or Market Cap.
- Price-Earnings Ratio or P/E Ratio
- Return on equity
- Free Cash Flow (FCF)
Play around with some of the free screening websites I told you about a moment ago and use some of these metrics to see what you find.
Next, I want to tell you about something else you might want to consider when choosing companies to invest in…