My Updated Formula for Stock Selection. I consider investing in stocks that have met the following financial criteria for at least the past 10 years:
➡️ Financial Strength:
Debt to Equity < 0.3: A lower debt-to-equity ratio indicates that the company relies less on debt financing and is less susceptible to financial strain during economic downturns.
Return on Equity > 15: A high return on equity suggests that the company efficiently utilizes shareholders' investments to generate profits.
Return on Capital Employed > 15: A high return on capital employed indicates that the company effectively utilizes all its resources, including debt, to generate profits.
➡️ Growth Potential:
Return over 10 years > 20: Consistent profitability over a long period reflects sustainable growth and a well-managed business model.
Return over 5 years > 20: This measures recent profitability and provides insights into the company's current performance.
Return over 3 years > 20: The most recent return indicates short-term profitability and growth momentum.
Profit growth 10 Years > 10: Consistent profit growth over a decade suggests a company in a growth industry with a scalable business model.
Profit growth 7 Years > 10: Similar to the 10-year profit growth but focuses on a shorter period.
Profit growth 5 Years > 10: The most recent 5-year profit growth indicates the company's current growth trajectory.
Profit growth 3 Years > 10: The most recent 3-year profit growth reflects the company's current growth momentum.
Sales growth 10 Years > 10: Consistent sales growth over a decade suggests a company operating in a growing market with a well-positioned product or service.
Sales growth 7 Years > 10: Similar to the 10-year sales growth but focuses on a shorter period.
Sales growth 5 Years > 10: The most recent 5-year sales growth indicates the company's current sales growth trajectory.
Sales growth 3 Years > 10: The most recent 3-year sales growth reflects the company's current sales growth momentum.
➡️ Valuation and Liquidity:
Price to Earning < 30: A price-to-earnings ratio (P/E) below 30 indicates that the stock may be relatively undervalued compared to its earnings.
Current price < 5000: A lower current stock price can make the stock more accessible to a wider range of investors.
Current ratio > 1: A current ratio greater than 1 indicates that the company has sufficient short-term assets to cover its short-term liabilities.
Quick ratio > 1: A quick ratio greater than 1 indicates that the company can quickly meet its short-term obligations without relying on inventory liquidation.
PEG Ratio < 1.5: A PEG ratio below 1.5 suggests that the stock may be undervalued relative to its expected growth.
Promoter holding > 50: A high promoter holding indicates that the company's management is confident in its long-term prospects.
Dividend yield > 0.1: A dividend yield greater than 0.1% suggests that the company is returning a portion of its profits to shareholders.