Stock Market Warning Signs: 7 Telltale Signs that a Company’s Stocks are Going to Drop

7 Warning Signs that a Company’s Stocks Are Going to Drop

Are worried that your stocks may be doomed without your knowledge?

Here are 7 telltale warning signs that a company’s stocks are going to drop:

1. Negative Cashflows

A company’s share certificate can only mean something to the holder if the company has sufficient cash flow to sustain its operations. Cash flow is a company’s lifeline; each and every investor should have a keen eye on the cash flow activities of the company they invest in. Whenever a company records a negative net cash flow in its Cashflow Statement, it means cash payments are more than cash receipts.

2. Interest Coverage Ratio

On its own, the Debt/Equity ratio does not reflect much of the company’s operations. Abbreviated as D/E, the ratio makes more sense when accompanied by an evaluation of the debt interest coverage ratio.

3. Alarming Debt-Equity Ratio

Distressed companies borrow at very high interest rates due to their perceived risk by financial institutions. The huge repayments of loans taken can strain a firm’s cash flow, ultimately leading to a default in the repayments.

4. Share Price Trend

The price of a company’s shares can speak volumes about its status. If the share price decreases when the industry is generally stable, it can be a sign of things going south.

5. Insider Trading

This is one of the surest ways for any reputable company to lose its public image. Most jurisdictions require companies to issue public reports in case of a purchase or a sale of a substantial amount of the company’s shares.

6. Profitability Warning

A Profit warning is a serious indicator of a company’s financial status. Declining profits or increasing losses always cause an instant reaction in the market, with most investors opting to sell off their shares. With time, the market systematically tends to under-react to the negative news. Consequently, negative news regarding a company’s profitability is mostly followed by a decline in the stock prices. As mentioned earlier, you can use the finviz stock scanner to analyze company key figures for free. However, there is another cool stock screening tool available that has a free plan as well. It’s called TradingView. Along with fundamental data, there a plenty of opportunities to visualize your favorite stocks with charts. Continue reading the TradingView Review to learn more about the 5 reasons, why their free trial is an excellent choice and why the free version is a must-have for every investor.

7. Investigations

Companies that are facing problems are always investigated by regulatory authorities such as the securities exchanges and tax authorities. These investigations normally precede a company that is about to undergo hard times.

Conclusion

There are numerous other ways one can know whether or not the stocks of a company are about to go down. However, these are some of the key red flags you need to watch out for to enable you to avoid losing the value of your investment.

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