What should I look for in a Company?

[burglar]

What should I look for in a Company?



Pouring Gold, Laying Concrete.

A Gold Company.
Having poured their first gold bar an explorer will photograph the gold bar in the hands of a celebrity (eg Minister of Mines) flanked by the CEO and Chairman. This is an announcement to the world that they have passed an extremely important milestone. They have become a producer!
Revenue will flow, giving options to management.
Pay Creditors, bed down debt or reinvest in plant.
An investor should be seeking value.
So now we can go to the Balance Sheet and look for things like Return on Investment (ROI), Cash in Bank, Net Assets.

An Industrial Company.
“Laying concrete” (a euphemism meaning they have built a factory) means an industrialist has reached the same milestone. An artist’s impression in a glossy magazine is not the same thing. A five year old can do that with crayons and paper. A fixed price contract is not a factory either. Look for a “big green shed”!

An Exploration Company.
A good address, leases in good locations. Look for Neighbours with credentials.
If possible, find assays for holes drilled, familiarise yourself with grades which are commercial.
See if there is infrastructure - transport, (road, rail), power, water!
Look for money in the bank, several million, enough to see them through a year’s exploration costs!
Capital raising wreaks havoc with the Share Price.
Remember, the earlier you get into an exploration company, the bigger the risk!

Just my opinion, DYOR
burglar

 

[ENP]

First thing I'd look for is if it is making a profit.

If it isn't I move on.

 

[doctorj]

Quality of management is key - fish tanks in the CEO's office or marble in the foyer are pretty reliable warnings

 

[skc]

Low PE and recent profit upgrade. Usually a pretty reliable combo.

 

[Julia]

What should I look for in a Company?

So far, no one has mentioned price action.

 

[burglar]

So far, no one has mentioned price action.

Hi Julia,

So far, just browsing ...
Perhaps you'd care to add a chapter or three on price action.

 

[skc]

So far, no one has mentioned price action.

How does anyone buy an unlisted company?

 

[kingcarmleo]

Interest Coverage and debt levels.

 

[burglar]

Richard Farleigh says there are times when it's best to be out of the market.

Never, have I been able to pick the direction of the market.

I have "held in faith" through dips, hoping my picks were good.
Equally hopeless, have also tried stop-loss followed by reentry ...!
(My broker loves me.)

Sir O has helped me with this dilemma.
He says I can purchase a Put Option!

 

[mazzatelli]

Sir O has helped me with this dilemma.
He says I can purchase a Put Option!

High level dissection, your portfolio has the payoff of a long call.
Alot depends on the premium you pay for the put. Best not to get flood insurance after a flood.

 

[Julia]

How does anyone buy an unlisted company?

Did the OP stipulate he was talking about an unlisted company?
I didn't read it as such.

 

[skc]

Did the OP stipulate he was talking about an unlisted company?
I didn't read it as such.

No. But neither did he stipulate listed companies.

My point was that if price action is something that one must look for then how do people buy and sell unlisted companies?

 

[Julia]

No. But neither did he stipulate listed companies.

My point was that if price action is something that one must look for then how do people buy and sell unlisted companies?

My comment was fairly obviously about listed companies. I'd assume if he wanted to find out anything about unlisted companies - something that I don't recall seeing much of on this site - he would have specified this.

And I didn't say price action is something one MUST look for. Some fundamentalists seem to not regard it as at all important. I simply remarked that no one had mentioned price action, this being one of the main factors I personally consider.
Happy for no one else to agree.

Not sure why you are making an issue out of this.

 

[skc]

My comment was fairly obviously about listed companies. I'd assume if he wanted to find out anything about unlisted companies - something that I don't recall seeing much of on this site - he would have specified this.

And I didn't say price action is something one MUST look for. Some fundamentalists seem to not regard it as at all important. I simply remarked that no one had mentioned price action, this being one of the main factors I personally consider.
Happy for no one else to agree.

Not sure why you are making an issue out of this.

Relax, Julia. There are no issues. You may have mis-interpreted the tone.

But I think it is worth keeping in mind unlisted company as examples sometimes.

What should I look for in a company? Price to me is not something in a company... it is something that is external to a company.

There are plenty of other things to look for in a company even if there is no price.

 

[doctorj]

No. But neither did he stipulate listed companies.

My point was that if price action is something that one must look for then how do people buy and sell unlisted companies?

Those that buy into unlisted companies tend to be institutional investors - think private equtiy funds, investment banks and pension funds (etc) or strategic investors. Obviously price doesn't play a role in the process in the same way it would with a listed company as you don't have the market bench mark.

So how do these guys make a decision? There's not too much magic too it - the investors themselves look at the macro situation, the market and the company (through desktop and on site due diligence). They'll troll through files, interview management, speak to competitors etc etc before coming to a decision.

 

[skc]

Those that buy into unlisted companies tend to be institutional investors - think private equtiy funds, investment banks and pension funds (etc) or strategic investors. Obviously price doesn't play a role in the process in the same way it would with a listed company as you don't have the market bench mark.

So how do these guys make a decision? There's not too much magic too it - the investors themselves look at the macro situation, the market and the company (through desktop and on site due diligence). They'll troll through files, interview management, speak to competitors etc etc before coming to a decision.

Yes indeed (my question was rhetorical btw). Plenty of business transactions everywhere. Businesses (and any assets for that matter) are acquired everyday via trade sales and mergers etc. At the end of the day people buy based on their best educated estimate of future prospects of the company. But decisions are made in the absence of price action - because they don't exist.

Now the debate is, given that price action does exist for listed companies, does that mean we should or shouldn't take that into account? I have my view but people will have others...

P.S. I did a couple of due diligence in the past corporate days. Always extremely long hours locked inside a war room secretly crunching away numbers until everyone smells like pizza. Not fun at all.

 

[burglar]

The OP, ohh that's me.

I don't hold much with the folklore that has popped up around OP's
What was intended?

I had noted that newbies don't know what to look for in a company.
Complicate the issue if you wish and debate the english if you wish.

I do not own this thread!!

I was rather hoping that experienced traders would help newbies!
(self included, always learning and thankful for it)


burglar

 

[doctorj]

Now the debate is, given that price action does exist for listed companies, does that mean we should or shouldn't take that into account? I have my view but people will have others...

Probably the best way to answer that is to look at what institutional investors look at when taking a stake in a listed company. From what I've seen, it depends how big the investment is relative to market cap, the liquidity of listing and how you're buying the stake (on market, off market, placement). If you're looking to buy a 30% stake for $50mm in a listed company that trades on average $2000 a day, the market price probably conveys very little information (their are some accounting challenges to overcome though). But if you're spending $50mm on a 5% stake in a company that trades in the millions each day, then it becomes a whole lot more important.

 

[burglar]

... Price to me is not something in a company... it is something that is external to a company. ...

Hi skc,

Strongly agree.

But surely the price must be paid at some point,
regardless of whether the company is listed or not.

I have always had a shortlist.
On it I place companies which meet my requirements.
(Obviously, Coca-Cola at $10 would make my list.)
I watch their price action and announcements.

 

[burglar]

High level dissection, your portfolio has the payoff of a long call.
Alot depends on the premium you pay for the put. Best not to get flood insurance after a flood.

Still have a lot to learn about purchasing a put.
Hope to have something in place before GFCII.