One of the most powerful skills an investor can have is the ability to recognize when a company is about to take off.
It’s rare to find a company that has several variables working in its favor. It’s even rarer to find one that satisfies all the requirements for a probable turnaround.
That’s why today our friend Karim Rahemtulla over at Monument Traders Alliance is showing traders what to look for in identifying a company that’s about to see substantial improvement.
– Nicole Labra, Senior Managing Editor
Great turnaround stories are NOT found often or easily.
Sure, you hear about potential turnarounds. But how will they really pan out? And do you have the patience to wait for them?
A turnaround is when a company experiences a long rough patch, sets a plan in motion to turn things around and then delivers on that plan’s promise. The rewards can be nothing short of spectacular.
Here are eight signs that will help you spot a GREAT turnaround in a company…
- Radical transparency. Management must be honest about the company’s issues. Many managers hide their heads in the sand and hope a situation will correct on its own. It rarely does. Most times it gets even worse.
- Strong product demand. The company must have products people want to buy, and it must have a pipeline of future NEW products that will excite people. There’s no point in trying to resurrect VHS rental shops or floppy disks!
- A new CEO or change in leadership. A new leader or management team can offer critical direction and momentum, particularly if previous leadership lacked a vision or failed to execute one.
- Available cash flow. Access to capital is critical. Turnarounds take time and money. In some cases, the entire business model is turned upside down and a fresh start is required.
- A clear strategy. In a word, foresight. Hindsight is great, but foresight is better. If management cannot articulate a strategy, then there isn’t one. End of story. End of turnaround.
- A proven track record. The company must have a history of big performance. The shareholders need to know that the company in its new iteration can regain glory. After all, what’s the point of being invested in a stock if there’s no potential for a huge payout?
- The right price. Share price must be at a level where new shareholders will stand to make HUGE profits if the turnaround succeeds.
- Invested management. Insiders must have a stake in the company. If they are putting money in, then they have skin in the game too.
Bottom line: Finding a turnaround story that meets some of these criteria is hard enough. But finding one that meets all of them is like finding a unicorn.
