Five Tips for Buying Cheap Stocks

Tip #2 – Avoid companies with a history of missed earnings.

Earnings are one of the most important “tells” when analyzing a company’s future prospects. Earnings are the pre-eminent indicator of how well the
company is progressing toward its goals, and also how well it is managing its bottom line along the way.

Since I tend to take a long-term view of the market, I don’t sweat one missed estimate — as long as I can determine that the company is on
the mend and no serious fundamental concerns have come to light.

However, if a company keeps missing estimates, that’s a different story. When that happens, it tells me that the business has some underlying problems.
Maybe it’s in an incredibly volatile industry, one in which its customers’ orders fluctuate wildly. Perhaps it’s in the process of restructuring and
can’t precisely estimate its cost savings. Or maybe they just can’t do simple math. Whatever the case, a history of missed expectations is a huge red flag to me.

NEXT – Tip #3