Stock Talk
Launched 8 Months Ago
Hi, I’m Papa Phil, the founder of a space called Stock Talk. I combine my decades working in Finance, Entrepreneurship & Technology with my passion and curiosity for finding great companies, to make it easier for people to invest or trade.
Every great investor has a superpower. Mine? I know how to make a balance sheet give up its secrets, and it is far easier to teach to you than it sounds.
Recently in a video stream on Substack, I mentioned Fundamentals of Investing, and I later received so many inquiries about that one phrase, I thought this topic should be revisited, since the newsletter of December 30th 2024.
Before You Buy That First Share — Let’s Talk Fundamentals
Before you click “Buy,” do yourself a favor: grab your homework folder. No, really. Investing without understanding a company’s fundamentals is like betting on a horse because it has a cool name. Fun? Sure. Profitable? Not usually.
So… what’s so fundamental about Fundamentals?
There are 10 main fundamentals, the info for each one is not difficult to find, no scavenger hunts needed. I’m flexible on a few, others are marked with an asterisk *, that means it is non-negotiable! Let’s walk through them.
1 Price — P/E and P/S
Price/Earnings (P/E) tells you how much you’re paying for each dollar of earnings. I like a P/E of 24 or lower, but I’ll go up to 30 or even much higher if the stock’s been climbing for good reason, a great story say, surging earnings or a savvy share buyback program. Price/Sales (P/S) this only matters to me when a company has no earnings… and even then, I am leery. That’s like betting without knowing the jockey or the track conditions.
2 Earnings (EPS)
Earnings per share — how much profit belongs to each share out in the public, even the shares you own. Higher is better, steady growth is best.
3 *Debt — Short and Long Term
Short-term debt is due within a year to 18 months; long-term is over that sometimes years. I want earnings comfortably higher than long-term debt. The bigger the gap, the better I sleep at night.
4 *Revenue
Past performance, the latest quarter, year-to-date, and — crucially — future guidance from management. Revenue trends tell you if this story is heading toward a bestseller or a bargain bin.
5 *Margins — Gross, Operating, Net
My bare minimums: < 30% gross margin, <15% operating margin, <10% net margin . Margins are like a company’s batting average — if they can’t hit and get on base consistently, you don’t put them in your lineup.
6 Market Cap
The company’s total value based on shares outstanding. Honestly, I care about this one the least. Big or small, what matters is whether it’s built to last.
7 *MOAT
How difficult (or easy) is it going to be for a competitor (or a start up) to duplicate the companies products, service, methods, and innovational track record?
8 *Management
The CEO is very heavily weighted in this decision, but the “C” suite of players are all important COO (Operations), CFO (Finance), CIO (Information and Communications).
The vision of the leader, and how they communicate that shared vision of where the company is going, how their entire team is going to get their, and what innovations are needed to stay there. These are all a big part of the job title of CEO. That is why so often we see one person hold the job title of CEO, President and Chairman. It creates no doubt as to who is the Captain of this ship.
9 *CAGR
Compound Annual Growth Rate, although this number can be volatile, I need to see it above 12% which is good, above 25% is better, above 40% is hall of fame material. Bonus points for being fairly consistent. This metric does not apply to start up companies in their early stages. Is the CAGR going up over the past three years, and if yes, how much?
10 *Free Cash Flow
The free cash flow tells me a bit about their swagger. They can avoid many obstacles with a large amount of free cash in their coffers. They can buy another company that fits their mold or compliments their product lines.
Fundamentals are “the key” to the kingdom of investing!
When I talk fundamentals, I’m talking about my core investing beliefs. Others’ beliefs, like Value, Company Past and Future, Financial Health, News, and Resources, we’ll cover in another point in time. But today, we’re starting at square one: the building blocks of a company’s success story, the Fundamentals.
Results are not typical. I teach methods that have made other traders’ and investors’ money, but that does not guarantee you will make money. Success in trading and investing requires work and dedication. Past performance does not indicate future results. All trading and investing carries risk.
