There are various things that you need to look for before buying a quality stock or share. However, there are certain things that you must take utmost care to check. Here are 7 such things that could help you pick a quality stock.
Avoid Such Shares
Often promoters pledge their shares to borrow money. This is a clear sign that the company or promoters may need cash. This shows that the company is not cash rich or the cash flows at the moment are not healthy. One would like to avoid such stocks.
Increase in Confidence if promoter Holding is Raised
Promoters increasing their holdings over a period of time is a good sign that promoters have confidence in the company. Over a period of time if their holding comes down dramatically and they have sold shares, it may be a warning sign. You can check the holding pattern of promoters which is released every quarter.
Another Important Aspect
If the cash flows from operations is positive it is a sign that the company is doing well. Compare the same, year- on-year to see how a particular company's cash flows have changed. Sometimes company's live on borrowed money.
Also see if there is an addition of debt over the years, without any serious expansion plan. You might want to avoid buying such companies which are highly leveraged. There are even many reputed companies whose debt on the books is very high.
Look for 52 week high/low price
If the stock has rallied and is almost trading at its 52-week high, you might want to avoid the stock. This is because the stock has already gained.
Nobody Can Guess the Market Movement
Look for quality stocks and forget how the broad indices are moving. If you have chosen the right stock and hold onto it, you might may money in the long term.
Ratios Must Make The Stock Look Attractive
Study some basic ratios like price to earnings, price to book value etc. If you do not understand these ratios, then ask somebody who does and learn. Buy the stock only if these ratios are within reasonable limits.