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jlmarcus (< 20)

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How to Evaluate a Stock in 10 Minutes



July 10, 2018 – Comments (0) | RELATED TICKERS: HBI

Investing in stocks or a company should not consume your life and if you are new to investing it can be intimidating to start. Find a couple of industries that interest you and you know something about. If you find investing boring you are less likely to keep doing the work or make bad decisions if you know nothing about the industry. A good company will have a solid moat so look for these indicators,  ROE (Return on Equity) greater than 15%, ROA (Return on Assets) greater than 7%, a positive Free Cash Flow and should hold true for at least 5 years if not 10 years before you’ll look any deeper into the company. Stock screeners can be a huge help.

Then take a quick look at the financial statements this will give you an idea of their accounting practices. Are there any huge jumps in an area from year to year, is there an unusual charge, does the company’s Goodwill seem to jump up, or is their debt really high? Look into any red flags because you don’t want to invest in a company that makes a habit out of moving numbers around.   


After this ten minute test if the company holds up read the annual report to get a good idea on management and what the company’s future looks like. Then decide how much you want to pay for the stock. It’s a good idea to keep track of stocks and prices so that you can stock up when the market is low, pun intended.  

Let’s take a quick look at Hanesbrands Inc. (HBI). The brand’s free cash flow has been positive for at least the last 5 years. I didn’t look any further back because there is no need. The ROA has been above 7% 4 out of the past 7 years, but it has been increasing. I would look deeper into this if the other criteria matches up. ROE has been greater than 15% for the past 7 years.

A quick glance at the financial statements. The income statement shows Revenue has been steadily increasing and no other large charges stick out. The Balance sheet shows cash is building, but not by much so it’s something to keep an eye on. Goodwill has increased a little more than I would prefer, but it’s not large enough to rule out the investment. Being able to cover their current liabilities with their current assets is a huge plus. They have a new long term liability charge which makes me want to look into if they had a lawsuit and the outcome. The first thing that stands out on the cash flow statement is Net Income and why is it so low and why such a big net income adjustment? This is something to look further into. Looks like they are trying to get a handle on the liabilities and inventory. A good sign is Hanesbrands Inc. have been paying dividends.

Overall it looks like Hanesbrands Inc. is going to make a comeback, but before making an investment read the Annual Report and 10-K filings to get some answers to the questions above. Have fun investing!

I am in no way affiliated with Hanesbrands Inc. and used for the stock screener and financial statements.  

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