Before you start investing in individual stocks, it is very useful to recognize and interpret some of the key financial ratios that are critical in identifying a good stock.
Back in Nov 2019, I wrote this article: The Best Predicator of Stock Price Performance which was a study done by Morgan Stanley. Long story short, the honor of best stock price predictor was Free Cash Flow divided by Enterprise Value.
This is similar to earnings yield which is Earnings / Price. Most are probably more familiar with its inverse which is the Price / Earnings ratio (P/E).
Similarly, we can also use Enterprise Value / Free Cash Flow as a better alternative to P/E to gauge the financial valuation of a company.
Let me use an example. In my latest article: 8 Outperforming Stocks to buy now (part 2), I highlighted a stock called Fortinet which is a security vendor that sells products, support,
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