Stock investment is one of the most rewarding and tricky businesses.Investors have to take great risks for earning greater profits from their investments.Its very difficult to search profitable stocks for investment.It needs high degree of skills and competence to search profitable stocks.We have compiled a list of 6 most important qualities of a good stock.Following are the top 5 most important qualities of a good stock for investment.
Its very important to have information about the reputation of the company.Investors can get all the useful information about the company from the website of council of better business bureau.Council of better business bureau is a very good website for getting information about the overall reputation of the company.
Long term investment
A stock must have the potential for the long term investment.Good stock always perform well during the tough times of recession and they show a consistent performance during this time.Consolidated Edison and Abbot laboratories are the best examples of the recession proof stocks.During the 2007-09 prices of Consolidated Edison grew by 17.49 % and Abbot laboratories grew by 19.74 % .
Good stocks having long term investment potential always offer good rates of dividends to the investors.Dividends is the profit share of the investor in the company.Good dividend shows that company is a stable company and is making good amount of profits from its investments.These stocks have always offered high rates of dividend yields to the investors.Dividend yield of more than 8% is considered very good in the market nowadays.
High return on equity
Return on equity is a very important for the company management and for the investors.It gives information about the efficiency of the company to increase its earnings and creating better earning opportunities for the investors.Return on equity is calculated by dividing the net income by the net equity of the company.
Return ion equity = net income/equity x 10
Most of the experts prefer return on equity more than 15 % as stock with this rate creates enough earning opportunities of the investors.Investors should keep an yes on the annual ROE growing rate of the company.It indicates that stock is consistently offering good rate of return to the company.
Price to sales Ratio
Price to sales ratio is a very good ratio for measuring the investment potential of any stock.It shows the sales generating potential of the company as compared to the price investor is paying for its stock.According to most of the investment experts it is difficult to manipulate the figures of sales as compared to the profit. So this ratio paints a realistic picture of the investment potential of the company.
Price to Cash flow
According to the stock experts this is another important quality of a good stock.A company should have consistent positive cash flow patterns.It shows that company has a very good ability to pay its short term and long term liabilities.A company lacking this ability is a very good candidate of bankruptcy.
Price to cash flow ratio is a very important ratio to get the cash flow information .It is calculated by dividing the share price by cash flow per share of the company.
Price to cash flow ratio = Share price/Cash flow per share