BTC$79,742.29-2.33%
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POL$0.0929-2.10%BTC$79,742.29-2.33%ETH$2,455.75-2.33%BNB$718.40-0.95%LTC$50.85-1.78%ADA$0.2123-5.01%XRP$1.40-4.67%LINK$11.65-2.27%DOGE$0.0848-4.40%SOL$101.79-3.18%POL$0.0929-2.10%I've been trying to get better at finding undervalued stocks instead of chasing companies after they've already had a big run. What do you normally look at first — P/E ratio, PEG ratio, free cash flow, revenue growth, debt, or something else? I'm especially interested in how people distinguish a genuinely undervalued stock from a company that's cheap because the business is actually struggling.
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Maria· Aug 26Free cash flow is the first thing I look at. A low P/E can be misleading if the earnings are accounting tricks but free cash flow is much harder to fake. A company generating more cash than it is reporting in earnings with a depressed stock price is usually worth a closer look. The question I always ask is why is this cheap and if I cannot find a convincing answer the market probably knows something I do not.
The cheap versus broken distinction is the hardest part. I look at whether the problem is temporary or structural. A company down 40 percent because of one bad earnings quarter in a business that is otherwise healthy is very different from a company down 40 percent because its entire industry is being disrupted. Meta in late 2022 was the first type. Peloton was the second. Same percentage drop, completely different investment case.