Sunday, September 19, 2010

Signals of Concern

It pays to pay attention to signals. Dark cloud signifies rain; smoke signifies fire.

Thirst means your body needs more water. Discomfort means there is irritation.

Below are some signals that have great implications for stocks:

1) Negative Cash Flow: When money outflow is more than money inflow, the company is in trouble

2) High Debt to Equity Ratio: Above 0.5 is a concern

3) Interest Coverage Ratio: Below 1 means that the company is not able to meet all of its debt obligations

4) Share price keeps drifting lower. This probably means distribution by some major shareholders

5) Profit Warnings: When a company warns that its profit won't be good, take it seriously.

6) Insiders selling heavily means trouble ahead, while their heavy buying means the opposite

7) Resignation of key personals need scrutinization (can be bad or good)

8) SEC Investigation: an ill omen

9) Litigation: Whether the company is suing somebody or somebody is suing the company is not a good sign

10) Right Issues: When the company ask you for money, be skeptical about it.