The stock market is in constant motion. Brands are continuously shifting in share price as a result of ongoing market sentiment, profit and loss estimates, routine quarterly earnings reports, and much more. The vast array of factors that play a role in the price point of any company listed on the stock exchange is impossible to pin down. However, there are a few elements of stock pricing that can help you determine undervalued shares that are poised for a boom period in the upcoming trading cycles.
Many people try to evaluate shares based on profitability, market capitalization, and other aspects of the company’s financial information. There are a few key metrics that are often relied upon heavily to make sense of a stock’s utility and profitability, but questions of value to a shareholder aren’t simply analyses. With the help of P/E ratios, free cash flow, and market capitalization (among many other statistics), you can begin to develop a formula for identifying undervalued stocks that are poised for a short-term breakout in the near future. Continue reading for a new outlook on undervalued shares and a great approach to capitalizing on their upward momentum.
Free cash flow is a great indicator of overall value.
Free cash flow (FCF) is a measure of the capital available after a company accounts for outgoing cash needs. This measurement is different from other metrics like earnings or net income because this only takes into account profitability that excludes non-cash expenses on the income statement and incorporates spending on assets, equipment, and other cash-specific expenses that play a role in calculating working capital on the balance sheet.
Free cash flow metrics are a great indicator of capital available to pay down debts and initiate dividend payouts to investors. As a tool for fiscal analysis, an understanding of FCF statistics can reveal problems in a brand’s underlying financial fundamentals before they make their way into income statements and quarterly earnings reports. As a result, this tool for analysis can help a savvy investor make sense of ongoing financial data and home in on companies that are poised for breakouts, as well as those that are heading toward a drop-off in value when the next earnings report is set to be published.
This metric can act as an early warning sign for investors, and it’s used as an advanced analysis tool by those who take their research habits seriously in the trading world.
Consider a brief case study of Ford Motor Company (NYSE:F).
Ford is a staple in the modern automotive industry. The brand is valued at just under $66 billion with a trailing 12-month net income (TTM) of almost $18 trillion. Investors who are buying into Ford these days know that the FCF-driven fair price target comes in around 80 percent higher than the current market price ($77.52 per share against a current figure of $16.48). While It’s important to note that investors who buy in today aren’t likely to see a monumental growth of 80 percent in the next few days, a long-trending uptick in share price is quite possible as a result of the massive gulf that exists between fair price metrics and the current trading rate.
With the help of this and other measurement options, finding shares that offer a huge upside potential is simple and can help you develop a portfolio of well-timed purchases that continue to pay out in spades over the long term. In the modern age, COVID-19 considerations have made many investors rethink their approach to financial stability and the means by which they approach the stock market more broadly. With these metrics in mind, you can transform your portfolio to enjoy healthy growth in all sectors.
Consider using a resource like Finance Charts for the best in market metrics and historical data so that you can always be one step ahead of the market.
