The way I look for companies I might be interested in investing in for the long term is by screening for ROIC of over 20%, P/E under 30, under 5 billion market cap. Then I check to see what debt levels the company has, whether or not I understand the business, and whether the company has a competitive advantage over its peers.
According to my personal favorite book on investing, the Five Rules for Successful Stock Investing, by Pat Dorsey (guy who founded Morning Star's analyst team, or something) generally speaking, ROIC is the best metric for determining whether a company is spending its resources efficiently and whether it's likely to thrive.
Is this outdated thinking? Is ROIC a flawed metric by which to evaluate stocks? Searching through this sub, I saw that Aswath Damodaran thinks ROIC as a metric can be manipulated to reward the destruction, rather than the strengthening, of a company. I take that to mean that Aswath is saying that that is a potential pitfall of ROIC, rather than a complete invalidation of the metric. Does that sound right?
Submitted February 27, 2017 at 02:57AM by duchessHS http://ift.tt/2lLpPpL
