A simple, beginner-friendly framework to help you decide if a stock is worth your money.

“Valuation isn’t about finding the perfect number. It’s about knowing what questions to ask before you buy.”

🧠 Why You Need a Checklist Before Buying Stocks

Buying a stock without a checklist is like house-hunting without a budget or criteria. You end up chasing what looks good — instead of what fits your plan.

A checklist keeps you grounded:

• It slows you down when hype is high

• It reminds you to focus on business, not buzz

• It helps you compare companies objectively

📚 Analogy: Think of it like a pilot’s pre-flight list — it doesn’t guarantee a perfect flight, but it dramatically reduces the odds of something going wrong.

✅ The 10-Point Valuation Checklist for Beginners

Here’s a simple framework you can use every time you research a company:

1. Do I understand what this business does?
If you can’t explain it simply, don’t buy it.

2. Is the company consistently profitable?
Look for positive net income and free cash flow over 3–5 years.

3. Are earnings and revenue growing?
Flat or declining numbers are a red flag unless there’s a turnaround plan.

4. What’s the P/E ratio compared to peers?
Lower isn’t always better — but context matters.

5. Does it have a competitive advantage (moat)?
Brand power, patents, cost leadership, or network effects are good signs.

6. Is the balance sheet healthy?
Check the debt-to-equity ratio. Too much debt = higher risk.

7. What’s their return on equity (ROE)?
Higher ROE means better use of shareholder capital.

8. Are insiders buying or holding shares?
Insider ownership shows alignment with shareholders.

9. Do I trust the leadership team?
Review CEO letters, interviews, and company behavior during rough markets.

10. Is this a company I’d be happy to hold for 5+ years?
If you wouldn’t want to own it long-term, don’t own it short-term either.

🛠️ How to Use This Checklist Without Getting Overwhelmed

• Don’t worry about being perfect — aim to answer 7–8 out of 10 confidently

• Use the checklist to compare 2–3 stocks in the same industry

• Revisit it every 6–12 months to update your view

🧠 Tip: Create a Google Doc or notebook page with the checklist format. Make a copy for each stock you research.

⚠️ Red Flags to Watch Out For

• ❌ High revenue growth but consistent net losses

• ❌ Constantly issuing new shares (dilution)

• ❌ Dependence on one product or customer

• ❌ Leadership with a history of overpromising and underdelivering

📉 Example: A company growing revenue 30% a year but burning through cash and issuing stock each quarter might not be creating value — just surviving.

💬 Quote to Remember

“The single greatest edge an investor can have is a long-term orientation. The second greatest is a repeatable process.”
— Morgan Housel

👉 Read Next:

➡️ The Difference Between Price and Value
➡️ How to Spot a Company Worth Owning for 10+ Years
➡️ When to Sell a Stock You Own (Coming soon)

📢 Brand Transition Note
ForexLive is becoming InvestingLive.com — and this educational series is just one way we’re helping new investors build a strong, simple foundation. Stick with us as we grow together.