Fire Your Stock Analyst!: Analyzing Stocks on Your Own

Summary

Detecting the red and yellow flags will often be your first clue that a company’s growth rate is peaking. Getting out before the news becomes common knowledge can help you avert big losses. These red flags warn of potential reduction in the company’s sales and earnings forecasts in the coming weeks or a negative report at report time.

Red Flags

• Slowing sales growth

• Accounts receivables increasing faster than sales

• Inventory levels increasing faster than sales

• Reported net income increased by pension plan income

Watch out for these yellow flags warning of potential problems down the road, but not necessarily by the next earnings report.

Yellow Flags

• Capital expenditure lagging depreciation write-offs

• Temporarily low income tax rates

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