In this article, we are going to talk about the steps you can take to find do a quick fundamental analysis and help you find your next multi-bagger for long-term investments. Investing in the stock market requires thorough research and analysis of various companies and their industries.
Business Profile
Before you invest in any stock, it’s important to understand the company’s business and its offerings. You should consider businesses that are futuristic in nature, expected to grow in the future, and are not unstable (like electric vehicles, green energy, technology). For example, if you invest in a company producing goods that are losing importance in recent times (like plastic bags) then you may not be able to achieve long-term growth in your stock portfolio.
Moreover, it’s also important to have the right concentration of various industries in your portfolio (i.e. growth and value-related stocks).
Sales Growth
The second most important thing is what the sales graph looks like. Sales growth provides a clear idea about the acceptance of a product offering in the market. Also, it increases the overall net profit for the company if the costs are tightly managed.
It is also important to analyze the % of repeat sales (i.e. old consumers buying products again and again) vs new consumer sales. A decent % of repeat sales indicates consumer loyalty and in turn, makes the company desirable to invest in.
Company Size
After looking at the business profile, you should also determine how big the company is in terms of its market capitalization. Depending on the market cap, the company can belong to one of the below categories:
Small-Cap
The companies with a market cap of less than INR 5,000 crore fall under this category. The growth opportunities associated with the company are high, but the level of risk is in no way less either. When there are chances of these companies to grow, there are equal chances of these companies to fall quickly with bigger losses as well.
Mid-Cap
Companies with a market cap between INR 5,000 crore and INR 20,000 crore are classified as mid-cap companies. Investing in these companies is less risky than in small-cap firms and more profitable than large-cap ventures.
Large-Cap
The companies with a market cap of more than INR 20,000 crore are categorized as large-cap companies. Investing in these companies is less risky as they have already proven their growth potential in the market. Thus, if you invest in a large-cap firm and suffer a loss, it has the potential to cover up the losses.
P/E Ratio (Relative Analysis)
Now as we have seen the business profile, revenue growth, and company size. We should not start looking at some imp valuation multiples for retail investors. The Price / Earnings Ratio is one of the most important multiples to consider in such a case.
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