How do we find Stock Ideas which make Money?

Money Muscle approach to stock selection and finding stock ideas which can make money for us

Certainly! Let's flesh out our investing strategy focusing on growth, quality of growth, valuations, outlook, and consistency in performance:

1. Growth:

   • Top-line Growth: Look for companies with consistent revenue growth over time. Analyze capex, industry tailwinds, and competitive positioning to assess the potential for continued revenue expansion.

   • Bottom-line Growth: Seek companies that demonstrate strong earnings growth, indicating efficient operations and increasing profitability.

   • Margin Expansion: Evaluate whether the company is improving its operating margins over time. Margin expansion can signal operational efficiency improvements or pricing power, both of which contribute to long-term profitability.

2. Quality of Growth:

   • Cash Flows: Focus on companies that can convert their profits into strong cash flows. Positive cash flows indicate a company's ability to generate cash from its operations, which is essential for reinvestment and shareholder returns.

   • Return on Equity (ROE), Return on Capital Employed (ROCE), Return on Assets (ROA): Assess the company's ability to generate returns for shareholders and efficiently utilize its capital resources. Higher ROE, ROCE, and ROA ratios typically indicate better-quality growth.

3. Valuations:

   • Price-to-Earnings (P/E) Ratio: Compare a company's current stock price to its current and forward earnings per share (EPS)

   • Price-to-Book (P/B) Ratio: Evaluate the stock price relative to the company's book value per share.

   • Free Cash Flow Yield: Assess the company's free cash flow relative to its market capitalization. A higher free cash flow yield may indicate that the company is generating significant cash flow relative to its valuation.

4. Outlook:

   • Management Guidance: Pay attention to management's forward-looking statements and guidance regarding future revenue and earnings growth prospects.

   • Management Commentary: Analyze management commentary in earnings calls, investor presentations, and annual reports to understand the company's strategic initiatives, market opportunities, and potential challenges.

5. Consistency in Performance:

   • Track Record: Evaluate the company's historical performance, looking for consistent revenue and earnings growth, stable margins, and strong cash flow generation over multiple periods.

That’s our approach for identifying companies whose stock can make money for us over the long term and we keep tweaking our approach as we become wiser.