Here are the 8 fundamentals I look at to give individual stock advice. Although I have acquired a number of industry stock analyst tools including monthly newsletters, technical chart analyst tools, etc. I would still be remiss if I didn’t mention thanks to my favorite author on the topic of stock selection and fundamentals; Louis Navellier, one of the great all time growth stock selectors.
#1 Sales Growth
You just can’t fake the sales growth of a company. How much are they selling this year vs last year?
#2 Earnings Growth
Usually measured in Earnings Per Share (EPS), for our personal budgets, it is not just what income we made right? It’s about what we kept. Earnings Per Share is how management paid all the bills and then had money left over for the shareholders. Have you ever heard of a company that spent everything (or more) than it made? If you can’t find the earnings per share of a company, it’s probably because of what we learned in grade school. A negative number (a companies loss) divided by a number of shares is undefined as the mathematicians say. Basically no profit left over after paying all the bills, “no EPS.”
#3 Operating Margins
A company’s revenue less the costs of making that product gives us operating margin. A company with strong products to sell and one that can charge a fair price and occasionally raise their prices has pricing power and strong operating margins.
#4 Free Cash Flow
Is what cash the company has after paying all its bills. Do you know that a company might show a profit but it may also have no free cash flow?
#5 Positive Earnings Momentum
Companies earnings can grow, but how about a company whose earnings growth is rapidly increasing? We can see such a situation would be very favorable to a stock’s price. Lets pretend we have a crystal ball shall we? In 2024 the company had earnings per share (EPS) of 5%, in 2025 EPS of 6%, 2026 EPS of 7% and 2028 it’s all the way up to 7.5%. Intuitively we know that this company is likely to be worth more in 2028 than it was in 2024 right? This fundamental looks at earnings momentum. Earnings is growing, but it is increasing that growth.
#6 Return on Equity
Earnings Per Share divided by the book value per share tells us how the company is managing its profits.
If in the first 6 fundamentals we wear our accounting and statistician hats, in fundamentals #7 and #8 we are going to put on our “let’s go listen to what the analysts are saying hats.” We know that every quarter of the year we see in the news it is “earnings season." Here each publicly traded company on the stock exchanges reports their financial statements.
#7 is Positive Earnings Revisions
Here when Wallstreet analysts raise their estimates, we can see the impact this has on a stock’s price.
#8 is Positive Earnings Surprises
“When stocks continue to surpass their expectations, the stock will likely increase.” Surprise – Surprise!
The Intangibles
When all fundamentals are met, we know we have a stock with tremendous opportunity. Why? You got it, “We did our homework.” We’re not talking 6 or 7 out of 8 fundamentals here you see. We are talking about having all 8 fundamentals met. When all fundamentals are met, we know we have a stock with tremendous opportunity. Still, we like to get a sense of what’s called money flow, or institutional investment flow. See, a successful, wealthy investor at the local restaurant saying I’m going into Apple or Google or Tesla still isn’t big enough to move the market. But when the institutional investors get involved buying and selling stocks on our lists that previously passed the 8 fundamentals, it’s time to take notice. It’s time to consider buying the stock.
