The Most Important Stock Fundamentals

Having a good understanding of fundamental analysis is very important in day trading, swing trading, and particularly, investing. Today I’m gonna talk about the top five things you should take into consideration every time you look at fundamentals.

Sales

So we’re gonna start out with number one, sales, okay? This is a simple thing, but it is so important. Remember, in low-price stock land, many of these companies have zero sales, $1,000 a quarter, $2,000 a quarter. Remember, in the world of trading, you’re looking to buy the future prospects of a company.

Now doesn’t mean these companies can’t run, doesn’t mean they can’t move. But if you’re looking to swing trade or invest, you wanna find a stock that actually has some sales, okay? You can’t pay the employees, you can’t pay the rent, you can’t pay your taxes if you have no sales.

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And the biggest things that many of these low-price stocks, they’re so speculative, they don’t even have a product or service you can buy. And I’m gonna talk about that a little bit later. If you got nothin’ that I can buy, obviously, there’s no sales.

So what you wanna look at is actually make sure before you buy a stock, especially for days, or weeks, or month, just look at that sheet. Right in StocksToTrade, we have it. It’s called the top line on a balance sheet is your sales.

Look at that, and really kinda take into consideration, this company’s got $5,000 a quarter in sales, do I wanna overnight this stock? Do I wanna swing trade this stock?

Bottom Line

So moving off of number one where I talk about the top line, now we’re gonna move to the bottom line. If you’re familiar with the bottom line, that’s your profit and loss statement. Because if you’ve ever done a financial statement, which if you haven’t, you should probably experiment with it and understand it, but you start out with your sales, you subtract all your expenses, and you end up with the bottom line, the P&L.

So again, as we’re breaking down the fundamental analysis of these companies, we wanna see if there’s any money left at the end of the day. And you’re gonna find a lot of these low-price stocks, it’s gonna be a big negative number even if the sales number is big.

And like I say, these are all just guidelines. That doesn’t mean you can’t buy this stock, but it’s one of those things where you gotta ask yourself, do I wanna day trade this stock based off of press release, based off price action, be in and out quickly, or do I wanna swing or invest in this stock?

And if there’s a big, ugly, red number at the bottom, you really wanna consider, okay, maybe this is a day trade only or maybe this is just a complete ignore for me. So focus on that P&L, and be sure to really be cautious holding long-term money-losing companies, because there’s a good chance they’re gonna do a stock offering, they’re gonna dilute, or, I mean hey, at some point, the chickens come home to roost, as they say, and the company may just go bankrupt.

If they’re losing money quarter after quarter after quarter, they can’t survive, your stock might go to zero.

Is There Anything You Can Actually Buy?

Third thing I wanna talk about, and I touch on this in the first one, is back to is there anything you can actually buy? Is there a product, is there a service?

Is it something you would even ever consider buying? So this is where we talk about fundamentals. This is the macro idea behind a trade. And when we talk about technical analysis, you don’t care what they make, you don’t care what they are, you’re only trading the chart.

When we’re taking into consideration fundamentals, we wanna know is there something I can buy? Can I go to their website, can I buy it? Can I go to the store, can I buy it? Can I go to their online app, give ’em a credit card, subscribe, and give them money?

Now biotech land, especially low-price biotech land, you’re almost never gonna see any sorta product or service because these are development-stage companies.

They’re trying to come out with that first product. So now I’m doing that fundamental analysis. I’m looking for a swing trade. Maybe I’m under the pattern day trader rule, so I wanna hold this stock overnight.

I see, going back to number one, no sales, money-losing, and now they don’t even have a product that I can buy or obtain by any means. Those are some red flags. Vice versa, if you see their product and you go to Target, you go to Walmart, you go wherever, and you see their product on the shelf, and people are buying it, this is what’s called a channel check.

You’ll see that a lot in real businesses. They’ll send a stock analyst. They’ll send people to stores and see who’s buying the Tickle Me Elmo. Is Tickle Me Elmo flying off the shelf? That dates me, that’s like 10 years old.

But they do a channel check and see if people are buying this product. That’s something you wanna potentially swing trade or invest in.

Price-to-Earnings Ratio

Fourth one we’re gonna talk about when it comes to fundamentals is your price-to-earnings ratio. And basically, this is just breaking down how much money are they making, what is the price of the stock, and how big is that ratio, okay? Now in low-price stock land, you’re gonna see some pretty big ratios because these are speculative companies.

So when they’re trading 10 times, 20 times, 30 times price to earnings, it’s not necessarily a red flag, but it is something you wanna take into consideration, especially if that number just gets hundreds of times.

And you’ll see that in low-price stock land where their earnings are this small and the stock price is this big. Actually, a great example right now as we record is BYND, Beyond Meat.

Maybe the most, I think it might still be the most successful IPO of all time. But their price-to-earnings ratio is huge, but the stock continues to trend higher. So it’s not a immediate red flag.

It’s simply telling you that mania is involved, okay? But that’s not a bad thing in the stock market. One of the biggest ways to profit in trading is to locate these mania stocks when people don’t care the price. And that’s when you see these high price-to-earnings ratios, that’s just people saying just like in an auction, I don’t care what it is, I want it.

So that can actually be a good thing. But if the stock starts turning on you, you’re in this trade, starts going against you, take into consideration if it’s got a amazing, huge price-to-earnings ratio, it may just be coming back to reality, and that’s your trigger to sell.

Look at Their Location

Last thing I always look at, and I joke that this is my caveman fundamental analysis, but I always look at, and actually, the great thing about StocksToTrade is this is built right in.

Pretty much anytime I enter a trade, and this maybe sound kinda funny, but I look at, we’ve got it built in to StocksToTrade, I look at their location in Google Maps and I look at their employee count, okay? And listen, recently, a stock just last year, it was a stock that pivoted from bulldozer rentals to blockchain to cannabis, and it was literally located in a house with like a bunch of toys out front in the yard. This was their corporate headquarters.

Now does that mean the stock’s gonna fail immediately? No, but is this a stock I wanna swing trade or invest in? And then look at that employee count. If there’s one employees, two employees, hey, I started a business 20 years ago, we started out with two employees, but we weren’t a publicly traded company.

We weren’t bringing in a $20 million, $50 million, $100 million market cap. So those are the two things I look at. And it may sound counterintuitive, it may sound silly, but I always look at that corporate headquarters on Google Maps, and I look at the employee count.

And if it’s a sketchy-looking office and there’s two people in the business, I don’t think I’ll ever swing trade it or invest in it. Day trading is different, but take that into consideration.

So back to my favorite thing to do with my caveman fundamental analysis. Have you ever looked up a company on Google Maps and seen some ridiculous office? If so, let me know below.

I’ve seen Mail Boxes Etc., I’ve seen apartments. I’ve seen one of my favorite was MagneGas. They were in a pole barn in the middle of a Florida swamp. I’ve seen a lot of funny stuff on Google Maps.

So let me know if you’ve ever seen anything like that when you were looking to make a trade.

Beer buff. Incurable zombie guru. Amateur introvert. Avid writer. Typical bacon junkie. Trader.