In investing, long-term success often depends more on avoiding bad choices than on chasing short-term opportunities. Many investors buy seemingly attractive companies only to later uncover issues such as weak cash flows, excessive debt, or declining promoter trust.
A systematic, data-driven approach can help prevent such pitfalls. With modern tools like Finology Ticker, investors can assess a company’s fundamentals, review multi-year performance, and filter only high-quality stocks.
Here are three crucial checks before investing:
1. Consistent Business Growth:
Look for steady sales and profit growth (CAGR above 15% over 3–5 years). Flat or erratic growth signals weak execution. For instance, Tata Elxsi’s 5-year profit CAGR of 25% shows strong momentum, unlike Tech Mahindra’s slower growth.
2. Manageable Debt:
A D/E ratio below 1 and an Interest Coverage Ratio (ICR) above 3 indicate financial stability. Hindustan Zinc’s minimal debt contrasts with Vodafone Idea’s high leverage risk.
3. Healthy Shareholding Pattern:
Promoter holding above 30%, minimal pledging, and rising institutional stakes suggest confidence. For example, Dixon Technologies’ stable ownership and zero pledging reflect trust, unlike Zee Entertainment’s past high promoter pledging that eroded value.
