Warnings Signs of Company Stocks You Should Avoid– Part II
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Warnings Signs of Company Stocks You Should Avoid– Part II
Contents |
Dividend Cuts
Companies that pay dividends has a place in most portfolio, particularly for income-oriented investors. In addition, the fact that a company pays a dividend paints a good picture of the company’s health. However, when a dividend-paying company suddenly suspends its dividend, it may signal that the company is experiencing some sort of financial trouble. Such companies would not find favor with income-oriented shareholders thus resulting in selling of shares by these investors. Finally, a dividend suspension may come in advance of serious job cuts, plant closures or asset sales.
Halting Repurchases
If a company has been repurchasing shares and suddenly stops, it may signal that the company is short on cash or that it thinks that the shares aren't a good investment at the time. Frankly, neither scenario would be attractive.
Lack of Diversification
In order to be successful and achieve growth over time, it's important that a company introduces new products and remains innovative. Companies that don't innovate run the risk of becoming irrelevant if a superior product or improved technology hits the market. It's also highly important for a company to diversify its product offerings. The reason for this is simple: if a company was to stick to one product line or a small number of lines that run out of steam, that company could more easily go out of business. Thus keep a lookout for, and be wary of, companies that are not innovating.
Industry Indicators
Companies that operate in the same industry (for example, the auto industry) may experience similar trends. If one company is struggling in a certain market, its competitor may be as well. Investors should be on the lookout for signals of how the company may be doing as compared to other industry participants. Suppose an investor was to note that a competitor was experiencing a decline in margins in its European business. In such a case, it might be assumed that other companies are seeing the same kind of decline. On the flipside, a company experiencing a huge influx of orders from a region may be a sign that other companies in that industry are experiencing similar trends. Keep an eye peeled for industry trends as this could signal what is around the corner.
In Conclusion
There are several indicators, besides the traditional financial valuation metrics, that may signal trouble to come for a company's stock. Investors with a sharp eye and a willingness to do research may be able to limit or prevent losses.
