There you have the number-crunching, balance-sheet approach to finding value in the stock market. Those numbers are extremely important, but they aren’t the only facts you need. If the stock meets most of the above tests, look for these additional signs of value.
The company’s industry is on the rise. Even though you can make money in a declining industry, you’re more likely to succeed in big and growing markets than in small or shrinking ones. Exciting young industries offer profit potential (and often correspondingly higher risk), but the staying power of any particular company is hard to predict.
The company is a leader in its industry. Being number one or two in its primary industry gives a company several advantages. As an industry leader it can influence pricing, rather than merely react to what others do. It has a bigger presence in the market: When the company introduces new products, those products stand a better chance of being accepted. Also, the company can afford the research necessary to create those new products.
The company invests in research and development. Any company worthy of your investment dollars should be concerned about product development and future competitiveness. Compare the company’s spending on research and development—both in actual dollars and as a percentage of earnings and sales—with that of other firms in its industry.