In the business news there are always reports of investments that have done well. But are these promising investments for the future? This thought came to mind when we read an article in The Motley Fool about two stocks that “crushed the market” recently.
Are These Promising Investments for You?
Here is what The Motley Fool has to say in their article.
A good stock really distinguishes itself when its share price rises above that of a prominent market index. In some way, it hovers above the rest of the vast pack of equities.
With the depth and breadth of the U.S. market, there are always a few standouts. For this week, let’s take a look at two good ones, and see what made them rise confidently above the average.
The two stocks they look at are Splunk and Square. Splunk is a data analytics solutions provider. Square is described as a “next-generation” financial services provider. Splunk’s route to long term success is by providing companies with the tools to analyze and make use of great amounts of increasingly complex data. Square’s niche is the tablet sales registers that are increasingly common. They provide both the hardware and software. Both stocks went up based on strong quarterly earnings. Now our question is, are these promising investments for you either in the short or long term.
Finding and Evaluating Promising Long Term Investments
A company that is making money is doing something right. What you need to do is determine if the business plan that resulted in a strong quarter will continue to pay off. When investing in stocks, this is all about determining intrinsic stock value. The successful investor Warren Buffett has famously said that he tends to avoid tech stocks because the success of their products, services, and business plans are so hard to predict. That having been said, we like both of the stocks mentioned by The Fool because they follow the logic of selling picks and shovels when everyone else is digging for gold. Both of these companies provide tools that make businesses more efficient and potentially more profitable. Their place in the world of business is not one of inventing the tech but of effectively utilizing it to benefit their customers. Because, in each case their earnings are up, they seem to be doing something right.
Your job in deciding if these are promising investments for the future hinges on whether the type of services they provide will be needed into the distant future and whether they can continue to be top (and profitable) providers of services in that niche.
Comparing Promising Investments with Their Competitors
In the case of Square you will need to compare it with others who provide services in their niche which include Shopify, VISA, American Express, Apple, and Amazon.com. In the case of Splunk the competitor are ServiceNow, Salesforce, VMWare, Palo Alto Networks, and Workday.
Looking at Stock Prices Over the Years of Investments That Appear Promising
Then you need to look at how recent profits, and stock price, compare to how they have done over the years. Splunk popped up $30 a share to $147 on the strength of recent earnings but it was selling at $140 a share just three months ago before its price fell. This company has been listed for 7 years, started at $35 a share, and has never fallen below $31 a share. It does not pay dividends and has no P/E ratio listed. This is to a degree a “story” stock that requires your faith in its success if you invest long term or your willingness to buy and sell for short term profits.
Square has been listed for 4 years and started at $12 a share. It currently sells for $68 a share but is down from $94 a year ago. Like Splunk, it does not pay dividends and does not have a listed P/E ratio. Again, this is an investment that may be profitable for short term profits but requires faith in their ability to compete in their niche if you want to invest long term.
Stocks and other investments that are reported in the business news are always worth checking out as promising investments but you need to do your fundamental analysis to determine the best stocks to invest in.