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Do you know what to look for in a stock?

Updated: May 4, 2023

Do you ever question what stocks to buy, what price to buy at, and what makes a stock over or undersold? I will go in-depth on how to tell which stock to buy!


The Financials

There's always a way to find which stock to buy, once you learn, it's as easy as riding a bike!


You must be doubting me right now, but by the end of this read, you'll be amazing at finding financial diamonds in the rough!


First, you must open up the income, balance, and cash flow statements. Now, let's dive deep into all of them! Let's start with the balance sheet first.

Picture of META financials
Balance Sheet

As we can see, this is META's past 4 years of their yearly balance sheet. First, find the total assets, the total liabilities, along with the total debt. This will tell you how healthy this company has been.


For example, since 2019, META has grown revenues every year by a healthy amount. As well, they only have $26,591,000 in debt, compared to 185,727,000 in assets.


META could buy off its debt with a very small check.


Now, let's see how many liabilities there are. As of 2022, META owns $60,014,000 in liabilities.


If we combine the debt+liabilities, it's equal to 86,605,00.


Why is this important?


If we combine the two, meta could buy off all of its debt+liabilities AND STILL HAVE 100 MILLION to spare.


That's very healthy since the total debt doesn't outweigh the total assets.



Pic of meta platforms balance sheet
Picture of meta balance sheet











INCOME STATEMENT

The images above show META's income statement. This is different from the balance sheet because this shows how their assets make money.


But, the balance sheet is just the list of what META owns.


Let's dive deeper into why META's income statement is strong! First off, let's look at the past 4 years again.


First, in 2019, META grew from 70 million to 85 million in 2020 in revenue. The following year, meta went from $85,000,000 to $117,000,000; doubling its prior year's revenue.


Then we retracted 1 million in revenue this year, coming in at 116.


This is a healthy pullback, because of its 2 GIANT prior growth years, it can't sustain that big growth at this point.


Is not being able to sustain that big growth a bad thing?


In this case, no. META already has 2.8 billion daily users.


How can a company sustain big growth when it already has 1/3rd of the world using its company daily? It can't unless it finds another new way to create profits.


We know that the revenues are healthy, but how much does the expenses cost to create this revenue?


1st off, the cost of expenses is $62,416,000, compared to the net profit of $91,360,000. META makes a decent spread of $28,944,000, which is their net profit for 2022.


This is healthy, as it only takes 3 years for them to pay off their liabilities with their profits. As you can see, the past 3 years have been very stable for META's financials, as Meta hasn't jumped big in their revenue as they did in 2019 and 2020. We like a stable, profitable company.


Now, we've decided that META has very healthy and profitable revenue streams, along with a healthy balance sheet.


What's next? Let's look at the average shares issued, but why?


If a company's shares are getting bought back, this is good because it gives YOU the shareholder more ownership.


It's because when they buy back shares, their fewer shares on the market, which allows bigger ownership of the company when invested. In 2019, META's shares outstanding were 2,854,000, but in 2022 they decreased to 2,687,000.


This is a small buyback, but as long as they're buying back shares and not diluting (adding)them, then it's a healthy sign.


So far, META looks like a very healthy company, but is it a good investment at this price?


CASH FLOW STATEMENT

Meta Platforms cash flow statement

Now, let's dive deeper into the third category, the cash flow. The cash flow looks very healthy, with 19 million in free cash flow.


Spending 27 million in 2022 on buybacks is very healthy as this is a great way to spend free cash flow. Since there are no dividends, buybacks are almost the only thing they can spend free cash flow, besides investing it or buying back debt. We want them to be aggressively buying shares during high periods of cash flow, which they did in 2022.



The Financials Review

The financials of Meta is very strong. Showing stable profits, along with low debt compared to their revenues are very bullish. Now, let's look at some key factors.


The PE of meta's sector is 16.51. The PE is the price-to-earnings ratio. It's good to compare this with the stocks in its sector.


The current PE is 19.76, which is 4.25 higher than the sector's average. This shows meta is a bit overvalued.


The past 4 quarters are shown in the image below, as you can see, META peaked at 14.01 eps. META has missed on eps for the past 3 quarters, which isn't too great either. This can hurt when earnings roll around as a big miss can kill a company's stock.


Market sentiment is also KEY! Market sentiment is how the markets are doing right now. For example, if the S&P 500 is in a bear market, then stocks will be in a bear market as well.


Since the markets have run beautifully this year, META followed with the s&p, almost rising about 100% from its previous lows. I believe this has made them a bit overvalued at these prices.
















IS META WORTH IT AT THIS PRICE?

META has some of the healthiest financials I've seen in a while! Does this mean META is a buy at today's prices?


META peaked at $381, since then, it has fallen to lows of 89$ per share.


It's never reached these prices since rising above 100$ a share.


At the current price of 173$ per share, has it run too much to be a good pick at these prices?


I believe the market has run too much, causing meta to follow it into overvalued territory.


But, does this mean I wouldn't buy META ever?


NO!!! I was once a buyer at $90 a share, and I will be buying again if META enters the $100-125 range again.


This way, I'll have little risk, compared to a high upside!


Leave a comment on which stock to review next! I'll be in the comments answering any questions asked!

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