In the world of business investment opportunities, the digital age has changed everything. Investors are now blessed with a wider and more flexible arena than ever before, and those that use it well are poised to generate some very serious ROIs. However, with so many digital products and companies to choose from, deciphering which ideas are worth your time and money is an even harder challenge than it was in previous generations.
So, how can you spot the Apple amongst the lemons? Here’s all you need to know.
Analyse The Companies Earnings
Until the company is generating earnings, any suggestions on the future value of the business are based on pure speculation. The harsh reality is that great digital products and technologies do not necessarily translate to profit and growth, particularly for investors like yourself. Basing decisions on book value won’t suffice.
Earnings and future earnings can be evaluated by looking at earnings growth (the % at which they grow year-on-year) and earnings stability. With the latter, it’s important to know where the stability is coming from too. Is it through top-line revenue or bottom-line expense cutting? This information allows you to make a far more calculated investment decision.
Check The Profits To Earnings Ratio
Another important metric to analyse is the P/E ratio. This is calculated by dividing the stock price by earnings per share. This figure gives you far greater insight as to whether the stock price is a bargain or a premium cost. While this doesn’t determine how the company performs, it can provide a clear reflection on how your investments will develop.
As a general rule of thumb, a P/E ratio of 15 is seen to be the key figure. Less than this suggests good value for the investment while a higher ratio could signal greater risks as the current price is quite high. While the current P/E ratio shouldn’t be your only indicator, it is an important feature to consider when weighing up the prospects of any given investment opportunity.
The Company History
In many ways, the success of your investment into a company will be determined solely by the future. However, a deeper understanding of the path that a business has travelled may give good indication for where it is heading. If the company was able to grow to its current position through a clear vision and roadmap, that’s a good sign that things should work out well.
A company that knows how to build upon its strengths, particularly in regards to knowing its place in the market, will always boast a greater potential for sustained success than a business that operates with ambiguity. That’s not to say things can’t change and evolve over time. However, if the company has reached this stage without any clear direction, the luck is likely to run out.
Analyse The Tech & Sales Strategy
As a business investor, it’s not always to gain clear insight into the workings of the company you’re looking to invest in. However, in today’s climate, you shouldn’t have any trouble in learning about their technological facilities. If the tech strategy is built with security, evolution, and automation in place, the venture is prepared for the journey ahead. Those that are ahead of the game will thrive.
Likewise, the sales strategy is a major indicator that deserves significant analysis. If the company has tried to gain your investment, you can learn a great deal from the way they’ve treated you. It’s also very important to look at the sales techniques and technologies utilised in relation to the consumer. After all, if the company struggles in this sense, people will look elsewhere.
Analyse The Industry
The tech industry evolves at a quicker rate than any other. As such, you cannot afford to act purely on the financial performance of the company you’re looking to invest in. New products can enter the market to completely change the marketplace. Even if it doesn’t render stock in the original company futile, it can certainly limit any hopes of serious gains.
With this in mind, it’s always important to read the news to understand what is happening in the industry. In addition to new companies and products, you should look for speculation and confirmation of acquisitions. When the giants (like Apple) buy out a business, this changes the whole sector. Then again, if you can get stocks before this time, you may stand to gain big revenue.
Product Need
Business success can ultimately be determined by supply and demand. While we all want to invest in cool companies, it’s a little pointless if there is no need for the products in question. Taking a step back to view the business for what it is, from a practical perspective, is essential. If looking at tech and digital products, you should think about whether there is scope for further development too.
If the product simply builds upon the success of existing items on the market, the company should offer at least one of two solutions. The products in question must either complete the function in a quicker or cheaper fashion, or do it with improved outcomes. A product that fails to do either cannot expect to thrive. People either want a bargain, or will pay for the best. It is that simple.
Gut Instinct
Last but not least, always remember to listen to your gut instinct. Regardless of how you’ve discovered a company, any feelings of uncertainty have probably surfaced for a reason. While your gut instincts won’t always identify the next big thing, they can often spot a bad investment opportunity. Do not be afraid to listen to yourself, even if your research suggests otherwise.
Apart from anything else, falling into a trap that you knew should’ve been avoided is the worst feeling that any investor can encounter. Missing out on an opportunity isn’t the end of the world as others will surface. Conversely, though, a bad choice could bring the curtain down on your business investment endeavours. In the world of investing, it’s better to be safe than sorry.