Points to remember for uncommon profits from common stocks

1. Does a company have products or services with sufficient market

potential to make possible a sizable increase in sales for at least
several years?
Management of the company should be focused and goal
oriented
Management should be able to make a mark and stand in the
market with increase in market share, if not with existing product
then with good R&D dept which shall help in increase in market
share with its innovation in its product list.
Management should evolve and have a plan of the sales cycle of
its products over a period of years for it to sustain and at the
same time grow with adding new products in the same product
line continuing the sales curve for newly introduced products.
2. How effective are the companys research and development efforts in
relation to its size?
See how much % to sales the company spends in research &
development of the product and compare that with other
companies and industry average. Make sure that the cost under
research & development is genuinely termed as research and not
just expense related to functioning of the machinery and
engineering cost. A company with ideal ratio of benefit of two to
one dollar spent on research shall be termed as an ideal
company to look for an investment. Also take a snap of past few
years as to how well have the company contributed to its bottom
line by result of its research activities.
A company must co ordinate between research, production and
sales problem for making a product efficient. The companys Top
management should help in achieving the desired output by
formalizing a strategy to overcome crash program. (A crash
program is what occurs when important elements of research
personnel are suddenly pulled from the project by any means)
3. How well the companys marketing strategy is?
Ideas and innovative way of marketing their product, how easily
have they penetrated the market, market share achieved with its
product awareness.
4. Does the company have a worthwhile profit margin and what the
company is doing to maintain or improve the same?
See how much % of net profit to sales have been achieved by the
company and identify this for a series of years and compare the

same with other giants. Unless there is a fundamental change in

marginal companies showing prospects of higher profitability
margin by introduction of new product, the ratio of higher net
profit to sales stands acceptable for making investment decision.
Also identify what the company is adapting to maintain or
improve its profit margin. Good companies which should be
invested in shall identify ways to reduce cost by product
engineering or increasing output with the same cost.