Forecasts Meeting Actual Results Forehead-Slapping Stock Blunders (2 of 7)

Forehead-Slapping Stock Blunders (1 of 7)

Ignoring Catalysts: The financial pundits, trade journals and business schools teach that proper valuation is the key to stock selection. This is only half of the picture because calculating P/E ratios and running cash flow spreadsheets can only show where a company is at a given point in time - it cannot tell us where it is heading. Therefore, in addition to a quantitative evaluation of a company, you must also do a qualitative study so that you can determine which catalysts will drive earnings going forward. Some good questions to ask yourself include:
- Is the company about to acquire a very profitable enterprise?
- Is a potential blockbuster product about to be launched?
- Are economies of scale being realized at the company's new plant and are margins about to rise dramatically?
- What will drive earnings and the stock price going forward?