If you are still comfortable with the company, it's time to investigate the industry. One quick way to do this is to compare numbers between competitors. Some great numbers to investigate:
1. Operating Margins
Does one company have significantly higher or lower margins than the others? Is this a long-term occurrence or a one-time benefit?
Does one company have significantly higher or lower margins than the others? Is this a long-term occurrence or a one-time benefit?
2. Debt to Equity Levels
Is the industry characterized by high or low levels of debt? How does the company stack up?
Is the industry characterized by high or low levels of debt? How does the company stack up?
3. Capital Expenditures
Found on the cash flow statements. Is the industry capital intensive? If so, this could be a problem during weak environments.
Found on the cash flow statements. Is the industry capital intensive? If so, this could be a problem during weak environments.
4. Competition
Is there a lot of competition? Coca-Cola only competes with a couple of companies. Teen retailer Abercrombie and Fitch has lots of competition. A great deal of competition can make it difficult for a company to consistently earn profits, as these businesses have to compete on price.
Is there a lot of competition? Coca-Cola only competes with a couple of companies. Teen retailer Abercrombie and Fitch has lots of competition. A great deal of competition can make it difficult for a company to consistently earn profits, as these businesses have to compete on price.
Read more: http://www.investopedia.com/articles/analyst/03/041503.asp#ixzz1dkBSPZ00
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