What makes a good company? What makes a good stock?

SonnyZH:

Growth potential.

Basically. KO might not be the best stock to own but it's a tremendous company. Problem is it's done growing. LULU has been a pretty great stock to own, but conversely it's probably a shitty business in the long run. Growth potential makes a stock, but it doesn't necessarily make a good business. In fact sometimes it means the business is shitty since it has a lot of room to improve or become better in one aspect or another.

funkee monkee:

Strong competitive advantages. Return on invested capital is greater than company's cost of capital. Does not need to expend much capital expenditures to grow. Strong margins. Capable management. Solid corporate governance. Capable capital allocation abilities.

funkee monkee:

Strong competitive advantages. Return on invested capital is greater than company's cost of capital. Does not need to expend much capital expenditures to grow. Strong margins. Capable management. Solid corporate governance. Capable capital allocation abilities.

How do you know what if their margins are strong? Simply based on comparing their margins to their comparables'?

<span class=keyword_link><a href=/resources/skills/finance/federal-open-market-committee-fomc>fomc</a></span>:

first of all the question is stupid. If you think from an investor's perspective a company is good only if it is a good stock. A stock is "good" only because it is a good investment. the real question here is what makes a stock a good investment. and the answer for this is very simple: PRICE . Price is the main determinant of your return, NOT growth. What good is growth if it is already priced in the stock???????? would I buy facebook at 100bn valuation? hell no. Would I buy facebook at 10bn valuation? hell yes. The only way it makes sense to buy facebook at ABOVE 100bn is if you believe the growth is even higher. Personally I think 100bn valuation for facebook implies astronomic growth. even if that growth is achieved, you're not benefiting from it because you already paid for it, hence your return is simply the discount rate. its the same logic that some companies (the smart ones) apply when doing M&A. yeah synergies means you can pay a higher price for the company but if you paying for ALL of the synergy value then the acquiror's return on investment (investment=acquisition of the target company) will simply be whatever "cost of equity" was used in the wacc (i.e.9-10% as an example)....this assuming the target company will meet all the growth targets used in the valuation (...cause if not, their return on investment would be even lower than the cost of equity used in the wacc). So, growth in itself, without taking into account the price, is a crap answer to the question of "what makes a good stock a good investment". Understand the mechanics of what I have just written here and I guarantee you, you will be in a better position that 90% of your competition, come buyside (PE and HF) recruiting season.

Some of that is true and some of that is complete bullshit. Just because you know what Weighted Average Cost of Capital does not mean you know what the hell you're talking about. Growth is the biggest factor in regards to buying. Sure, price is a factor but it shouldn't be the ultimate because it is nearly impossible to time the market correctly. For example, if I bought RIM at 20 (selling .5-.6x book value), it would be comparably "cheap" to its highs but if i bought it at there I would of lost about 65% of my investment as of now. Growth and beating expectations is what moves the prices up. And why do prices go up because of the beat expectation numbers... because of implied GROWTH in the future. OP listen to that post with a grain of salt.
I truly am willing to put 100 dollars on anything that you got the 100billion dollar valuation is overrated because you were watching CNBC or Bloomberg. I sincerely doubt you know jack dick about the business model of Facebook or its projected growth rates and why people think its faulty.