Identifying Declining Stocks

Successful investing requires the ability to identify declining stocks.

Warning signs of a shares decline…

  1. Slow down in earnings
    Are earning increasing or not? Companies exist to make profits, so a lack of profit is a sure sign of a companies poor health. A companies earnings are the most important measure of success. But remember this may be influenced by the overall state of the economy at any point.
  2. Slow down in sales
    Sales generate profits and any downward trend on sales will hit the bottom line. And remember to focus on the sales of what a company normally sells. Discount any unusual or one sales, such as sales of plant or equipment.
  3. Insider Selling
    When the companies own directors start selling shares in the company you can be sure they know something the market doesn’t.
  4. Cuts in the Dividend
    Whether you are investing to receive dividends or not you can be sure that any cut in is a negative sign. It may to done to ensure the long time health of the company. Just be sure to understand the reasons behind any dividend cut.
  5. Industry decline
    Even a strong company can suffer if the overall industry is having problems. Likewise a lot of companies are dependant upon the strength of other related companies. The Car industry’s recent problems are a good example of this having negative effects on all companies in the supplier chain.
  6. Government Intervention
    Government regulation, interference or taxation can all have a negative impact. Think of the tobacco industry or the recent surge in fines on companies for various misdemeanours. Whether you agree with Government policies or not any such action will have a negative impact on a companies share price.
  7. Unsustainable Debts
    Too much debt will eventually drag any company down. Record numbers of companies are going bankrupt including many that just a year ago were thought to be invincible. Obviously the current credit crunch doesn’t help matters but it really just proves that only the strong will survive in the long term.

Updated: October 14, 2011 by admin