How to Pick Stocks

In one of my previous posts, I wrote about the investment strategy of Peter Lynch, an American fund manager. Some of you are probably interested in it, and want to learn more.

I recently bought the stocks of Padini, an apparel maker. I made the purchase based on the guidelines given by Lynch. Now I will tell you how I came up with this decision:

• In the past few years, Padini’s revenue has been growing at about 9% annually, and profit has been growing at more than 20% annually.
• P/E ratio was about 9.5, which wasn’t too expensive. (According to Lynch, if the profit growth doubles the P/E ratio, the stock is a bargain.)
• The company has more cash than debt.
• PADINI is not a hot stock. (Hot stocks tend to be riskier.)
• We buy clothes even when economy is bad.

Of course, I am not an investment guru; I may be wrong. The picture is not all rosy. For one, Padini’s brands are relatively weak. Uniqlo, the Japan-based apparel maker, has a much stronger brand. Then again, Uniqlo may not pose a serious threat. Clothes sold by Uniqlo are often too warm for Malaysian climate.

Note:

P/E ratio is short for Price/Earning ratio. We compute P/E ratio by dividing the stock price with earning per share.