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10 Questions to Ask Before You Buy a Stock



3. What Is the Company's Earnings History and Outlook?

A quick scan of older news stories and the company's past quarterly statements help answer this question. Does the company have a history of steady earnings growth? Are earnings volatile? Remember, all trees don't grow to heaven: If the company is a maturing tech company, can it sustain the heady growth of its days as a spry, young growth company?

4. How Richly Is the Company's Stock Valued?

It's wonderful to find a company whose earnings are growing exponentially, but the other side of the equation is the value the market pays for that growth and the prospect of future growth. There are several basic methods of determining a company's valuation, including price to earnings and price to sales. These numbers can be easily found online (including under the Key Stats tab on TheStreet's stock quote pages). Price-to-earnings, or P/E, multiples aren't the perfect gauge, but investors do need to consider how much they are paying for a stock.

5. Who Are the Company's Competitors?

Companies don't operate in a vacuum. For every Coke  (KO), there's a Pepsi  (PEP) -- and a host of other competitors as well. Companies are constantly trying to take business from one another. Investors should know where their companies stack up: Does this company have the biggest market share in its industry? Is it a small but growing niche player in a competitive industry? Is it an industry dominated by one company, or is it a fragmented industry where even the biggest player controls less than 10% of the market -- such as in the supermarket business? Also, investors should increasingly pay attention to foreign competition, where lower-cost competition can put pressure on profit margins.

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