Matty whether you have $500 or $50000 that approach won't work long term and you will be caught out sooner or later imo.
A few weekends ago we did a topic of fundamental analysis. This is pretty much how people analyse stocks to see if they analysis really worth buying into.
This was my post and hope it helps.
"OK so when I'm analysing a stock there are a number of things that I need to Consider.
1. Market cap
2. Enterprise value
3. Valuation of peers
4. Is it in the right sector
5. How many do directors hold
6. How many do top 20 hold
7. Performance of current directors
8. What are it's upcoming milestones
1. Market cap
Market capitalisation is the market value of a company's shares. This figure is calculated by taking the share price and multiplying it by the total number of shares. it can get a bit tricky deciding whether to use options. Options should be included if they are in the money or close to being in the money.
For example, company ABC has a share price of 2c and has 200,000,000 heads (shares) and 10,000,000 options with a strike price of 3c. The market cap is (200,000,000 + 10,000,000) * 0.02 = $4,200,000.
If the options had a strike price of 10c though I wouldn't have used them in the calculation.
2. Enterprise Value
I can see sectorlead has already written a great summary. See
http://hotcopper.com.au/posts/17358542/single
3. Valuation of peers
When determining whether a company is "cheap" and therefore has more room to run, it's important to see how it's valued compared to its peers who are at a similar point in its life cycle. You should also look at those who are more advanced to see possibly how much room the stock can run if it meets it's objective.
As an example let's look at SRT. Based on my research on fintech companies who are making $1m NPAT per year, they have a MC of $100m+. So SRT first performance milestone is $1m NPAT and if the vendors don't achieve this they pretty much get nothing. So SRT currently has a MC of 26 million and will have 1.55 b shares if milestone one is achieved. So 100mil MC = 6.5c. So theoretically srt will minimum 2 bag if milestone 1 is achieved.
4. Is it in the right sector
As I'm writing this I can see others have already written great summaries lol. For sector analysis see freeholds post
http://hotcopper.com.au/posts/17358262/single
5. How many do directors hold
This is very important as when directors have skin in the game they will be more than likely look after themselves as well as shareholders. So no massive dilutions and being very prudent with company finances. They will also ensure placements go to sticky hands as they wouldn't want to see constant pump and dumps. Very good example is DUO which Peter wall had no shares in and was diluted to hell and back numerous times. Matthew walker though was very smart about it and raised at good prices most of the time to very sticky holders.
6. How many do top 20 hold
The more the top 20 hold the tighter the register. This means there is less free float available of shares which will be sold on market. The less shares available to be sold the easier it is for the share price to run. The people in the top 20 are also important. If you have people in the top 20 who consistently back winners they will more than likely attract other good investors who follow them.
7. Performance of current directors
This is extremely important. We are trusting directors with our money so if they haven't performed in the past what makes you think they will perform in this stock. Mark creasy in the mining game and Matthew walker in the shell game are great examples. Check what companies the directors have worked in and see the share price performance to work out how successful they have been.
8. What are it's upcoming milestones
From a STT perspective we rely on announcements and big milestones to make money. If a company has no big milestones coming up then what will make the share price move up?
These milestones are also important in understanding when to time our entries. Depending on our trading strategy you can time your entry. Personally I like to get in 6 weeks earlier than when a milestone is due so there is less competition from other traders.
Remember this is the absolute minimum amount of research I will do to help me shortlist prospective stocks. Without doing the above as a minimum the risk increases substantially."
