If you are determined and what you want is to have a better return on your money, you should evaluate these three criteria when choosing stocks for your investment portfolio.
- Understand how the business generates revenue
It is very possible that you know the companies that are listed on the BMV, or even some global companies that are listed on the SIC. One of the backbones in investing is to understand in a concrete way how it is that the company in which you want to invest generates income.
For example, in the case of an airline, it will have to sell tickets, cover costs, manage flight occupancy and maximize profitability given the current conditions of inputs, such as oil or the dollar that can influence its results.
- Know the business and its survival conditions
As an investor, you have to dominate the business model of the company and understand if the industry in which it is located has sufficiently solid entry barriers so that a new competitor does not arrive and in a short time manages to take away its market share.
Is it a business model that allows them to replicate your product or service? Do customers show brand loyalty? Is there a way that the company can be replaced by solutions from another company or by some new technology?
- Pay a fair price for companies
One of the most relevant questions before choosing to buy shares is to justify whether the company’s price is supported by its fundamentals, that is, by all the information available about it.
The objective is to know if the stock is expensive or cheap in relation to its target price. Look at the company’s multiples, which is a way of establishing its value by comparing it to the value of shares of other similar companies.
So you can know if the company is cheap or expensive compared to its competitors. You can also compare the average value in a period and compare it with that of other companies. Use all the information you can get to know if the price of the stock right now is fair or high.
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