Fundamental Analysis
How to perform stock market due diligence before you invest V
We hope you understand due diligence upon the stock market. Investing your hard-earned money is risky, but if you do your proper due diligence, then you should be able to minimize those risks as much as possible. The final process below along with those previous ones is a quick snapshot of how to do your due diligence when looking to invest in stocks.
Step 9: Expectations
This due diligence step is a sort of "catch-all," and requires some extra digging. You'll want to find out what the consensus revenue and profit estimates are for the next two to three years, long-term trends affecting the industry, and company-specific details about partnerships, joint ventures, intellectual property, and new products and services.
News about a product or service on the horizon may be what initially interested you in the stock. Now is the time to examine it more fully with the help of everything you've accumulated thus far.
Step 10: Risks
Setting this vital piece aside for the end makes sure that we're always emphasizing the risks inherent in investing. Make sure to understand both industry-wide risks and company-specific ones.
Are there outstanding legal or regulatory matters? Is management making decisions that lead to an increase in the company's revenues? Is the company eco-friendly? What kind of long-term risks could result from it embracing/not embracing green initiatives? Investors should keep a healthy devil's advocate mindset at all times, picturing worst-case scenarios and their potential outcomes on the stock.
Professional Analysis
Lastly in this due diligence list, you should open up a dialogue with analysts or professionals. Get their take on the long-term trends of the company and the industry itself. After that, all there is to dissect all the information you have compiled and decide what long and short-term risks you are willing to take.
The Bottom Line
Once you've completed the 10 steps you should be able to evaluate the company's future profit potential and how the stock might fit into your portfolio or investment strategy. Inevitably, you'll have specifics that you will want to research further. However, following these guidelines should save you from missing something that could be vital to your decision.
Veteran investors will throw many more investment ideas into the trash bin than they will keep for further review, so never be afraid to start over with a fresh idea and a new company. There are literally tens of thousands of companies out there to choose from.