When you buy a share of
stock you become part owner of a business. Before doing that you need to
assess its fundamentals such as what the company sells as well as its revenue, profitability,
and cash flow growth rates. It's also important to assess how much of that
revenue the company keeps (margins). Moreover, you should also determine
whether the company retains some of that cash for reinvestment in the business.
Growth in revenue and cash flow generating capability while utilizing as little
external capital as possible is what determines superior long-term gains versus
the overall market.
It also pays an investor
if that company sits behind a huge barrier to entry against competitors.
Competitors dilute the profitability of your company while lowering the
potential for superior long-term gains.
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