WWII 065: 15 Financial Statement Red Flags, Stocks with Revoked Registration, Tesla Valuation, Jay Z's $850 Champagne

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Main Topic: 15 Financial Statement Red Flags

In this episode, I shine the light on fifteen financial statement red flags to look out for when analyzing a potential investment. Listen to the episode to hear my explanation behind each of these fifteen:

1. Earnings track record poor

2. High return on equity and no free cash flow

3. Declining free cash flow

4. Constant “non-recurring” charges

5. Constant inventory write-downs

6. Declining gross margins

7. Depreciation much higher than capital expenditures

8. Slowing of collecting of receivables - DSO

9. Climb in inventory, especially if obsolescence is a problem.

10.Increasing debt/equity ratio but flat or declining ROE

11.Increasing number of shares outstanding but flat earnings per share

12.Margins less than industry average (poor management)

13.Unsustainable dividend payout ratio

14.No dividend and low ROE

15. High Debt to FCF (will take longer to pay off)

Ask JB: Why is Tesla stock selling at such a rich price?

Question about stocks in a company with revoked registration (self.investing)

submitted 22 hours ago by dagnels

My pops tried to make some risky investments for me years ago, probably hoping to help me retire a little early. One company he invested in was Gabriel Technology Corp, and it says their registration got revoked by the SEC effective 1/29/14 (however they are still an active company). Are the shares that he had in this company basically just worthless? Everything I've read makes me think that money is pretty much gone, but I wanted some opinions since it was a pretty good chunk of money.

JB Says: Just because a company is no longer listed on a stock exchange does not mean that the stock is worthless. Sometimes an unlisted stock trades “over the counter” which is an exchange not regulated by the SEC. You can check for it by searching for the company name plus “Stock” on Google. You can also contact the company directly and ask them the status of the stock you own.

Tesla is the highest valued auto company. I understand people see the potential value in the company (i think it's great) but there has to be a cap. Especially when all other auto companies with much more experience are in the same game and gearing into it. If Tesla was currently making the profits of Ford or GM then I would agree with the evaluation but other than that i'm lost!

What is the opinion of people here that own Tesla stock?

JB Says: I / we don’t own Tesla stock, but I have shorted it successfully in the past, and may again in the near future. I’m a fan of the company and its product, not to mention that Elon is a fun guy to follow. What I have an issue with is the valuation of the company. It’s currently valued as if nothing will ever go wrong with the company and everything works out optimally. Nothing works out optimally so what makes Tesla investors think that they have discovered the one company that will?

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Jay-Z's $850 bottle of champagne


Thoughts on this podcast? Disagree with me on some point? Something I missed? Leave a comment!

About the Author

Jeremy Scott Bailey is an investor, author, entrepreneur and host of the "What Works In Investing?" podcast now available on iTunes. He is founder and Chief Investment Officer of Burgeón Group, Inc. an investment advisory firm that provides portfolio management services to families and individuals.

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