Is it the P/E ratio? Is it revenue or profit growth? Or maybe the company’s market share?
While all of these are important in analyzing a stock as a potential investment, I think the most important metric to evaluate isn’t quantitative but qualitative. I believe the answer is management – the executives of the company like the CEO. Even a company with the most sought after product or service can be a bad investment if the wrong management team is in place. If they fail to keep employees happy and motivated or to control costs, what will happen to sales and profits?
The culture of a company and management’s effectiveness in executing their goals, I feel, are perhaps the best indicator of future success. This makes the quarterly earnings call the best resource for investment research. I want to hear directly from the executives what their opinions of the past quarter’s results are, what went right and what went wrong, and most importantly, their view of the upcoming year and plan for growth. They’ll usually try to paint a rosy picture but you can hear it in their voice when they’re truly excited about new opportunities or when their nervous about sales or a competitor taking market share. This is why I try to either listen to the quarterly earnings call or read the transcript of the call for each company my clients own.
-Nick