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One problem with a stock like this is it may indeed by sound and making money
- but nobody cares.
I once bought a stock that sold for $4.00 and earned $2.00 per share (not a
bad PE). The stock never went anywhere. 5 years later the founders bought
out all stockholders for $7.00 per share. Not too bad but I had my money tied
up for years.
Posible
Problems: -no sponsorship
- no analysts following the stock
- owners may not want it to go up - they may be buying it
themselves on
the cheap
- there may be hidden problems like very weak management or
lawsuits,
goverment may be after them, the inventories may be
overstated, etc.
- the auditor is probably a firm that no one has ever heard
of
- the management may have a past history of illegal
activities or of
closing companies, looting companies (self dealing)
- it may be a "one customer" company - obviously, this is
very risky to
say the least.
- they may be out of date in equipment, technolgy, etc.
- what is the trend of their financial ratios? Getting
better? Getting
worse?
- what does the chart pattern look like? Is there a huge
amount of
overhead supply? If so, it may never move up.
- Look for nepotism, isn't always bad but is usually a
bad sign, hard
to detect. (Who could forget Lincoln Savings where
Keating put
son-in-law into a VP spot at $1 million per year
- his previous job
was as a dish washer).
Take a much closer look before in leap and assume the worst until you can
prove otherwise. See what's being said about the company on the internet but
be wary of the good news.
Norm
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