By now you have determined the growth in several key financial areas of the businesses on your stock list. Which of these stocks is worth investing in? Which have growth of 10% or better in every category? It’s time to cut the list down and determine which stocks can make you money. Take those stocks which have the 10%+ growth and place them on a new list, and discard the other list. Now we will continue researching the stocks with promising growth and solid underlying value.
MSRP, or Manufactures Suggested Retail Price, has little to do with stocks or stock picking. But in our next calculation of potential stocks to invest, we need to determine their fair or “retail” market price. That is, the price the stock would be if it accurately reflected the company’s true worth. Of course, stocks are rarely priced at their fair market price, which is good for us.
After we calculate the “retail” price, we need to determine what amount of trading cushion we would like. What discount should we strive for so we can insure that no matter what, we can still make at least 15% return on our investment. So, instead of MSRP standing for Manufactures Suggested Retail Price, lets say MSRP stands for Maximum Stock Retail Price. It is the maximum we want to pay for a stock.
If you were to open your own a clothing store, one of the most important decisions you will make regularly is where to buy your merchandise from. Whether it is from the manufacture, wholesaler, or other means, you are looking to get the best possible merchandise for your customers for the lowest price to you, for max profit. The closer to “retail” price your cost is, the less attractive that supplier should be to you, as you will make a smaller profit margin. And even if you secure a great supplier with awesome pricing, you should always continue looking for other suppliers to do business with. The same is true with stocks. Every stock has a “retail” price, a price that most correctly values the company’s future growth and current worth. The closer the stock price gets to that ceiling, the less interested you should be. Of course, there are variables that make a stock more or less desirable around the retail price, but that is another topic. So, we need to determine each of your stocks “retail” price, then determine what discount price is acceptable for our maximum investment return.
To be continued…
Filed under: Calculate Value
