ALERT❗ Watch out the below 5 red flags 🚩

Just sharing some of my pointers while you search for potential investments.

1. Decelerating sales growth. As a young company grows larger and larger, its inevitable that the sales growth will slow down. But such a slowdown should be measured and orderly. When the growth slows sharply it could be a sign that the company hit a serious wall. Management will likely explain any slowdown as a mere hiccup, but you'll need to dig deep to find the root cause.

2. Shrinking profit margin. First rule of thumb of business is as the sales grow, a company can leverage off its fixed expenses. And that means profit margins should be expanding. However if the margins shrink even the sales turn higher, it is a clear indicator that the company is losing its pricing power, a red flag that it is struggling to maintain the market share.

3. Industry pressure. It's important to take note of the industry. If the management says industry is fine but key rivals say the otherwise: business getting tough, stick with cautious view. Increasingly difficult conditions within peer competitors may signal specific beleaguered industry.

4. Regulatory inquiry. Or investigation by the exchange securities. Do not downplay any investigation as seemingly minor. $Luckin Coffee(LKNCY.US)$ Surely there is an alert that triggered the investigation.

5. An abrupt management change. A shake-up at the top is not always bad as people leave companies all the time for a higher and better pay, however if the departures of key team e.g. CEO resigned without solid explanation, it is a red flag.

Hopefully you won't see too many of these red flags while searching for investments. I learnt some of these the hard way, after all.