Analysis Tools for companies in the m3 Portfolio
REVISED
December 7, 2002
Triggers for Further Analysis:
(See “Notes” document for additional information)
1. The company is acquired or merges with another company,
and/or there is a major change in management.
2. Several company insiders significant blocks of stock.
3. The stock’s P/E climbs to more than 50% above it’s
historical average, the industry average or the S&P
500’s average. (If it’s above all three, don’t hesitate.)
Analyze and rank in order listed.
4. Declining profits, either actual or projected, over a
three- to five – quarter period.
5. An unexpected surge in the price of the stock that gives
you a return of 50% or more within two months.
6. The quality of earnings is deteriorating. Net profits,
for example, may be expanding, while revenue stagnates for
more than two quarters.
7. Ask yourself, “At this price, at this P/E and with its
current prospects, would I buy this stock now?” If you
wouldn’t buy it, why should you continue to own it?
Metrics to use when considering selling a company’s stock
Is the stock…
1. Overpriced (at least 150% of the 5yr average P/E) and
the company's earnings are growing at 10% or less?
2. A high risk, with an upside-downside ratio below 1:1 or
so (the point at which risk begins to exceed potential
reward)?
3. Price dropping by more than 25%?
4. In decline because a bad balance-sheet position (e.g.
increased debt)
5. In a company whose business is showing continued
deterioration?
6. Not as a good as a (significantly) better alternative?
7. In an industry in the decline, or facing significant
competition?
