Using Take Stock couldn't be any easier. Just enter a ticker symbol in the left navigation box and click the GO button.
Let's go ahead and try it using the ticker symbol ARO, the clothing store chain Aeropostale, Inc.
Instantly, the program calculates the Quality Index, Mood Indicator, and a Buy Price for the company, and presents those values on the initial screen along with some plain English explanations.
As of this date, ARO's Quality Index is 8.9 (on a scale of 1 to 10), which means that it is an excellently-managed company. In simplest terms, the Quality Index looks at just three components that best represent the overall quality of a company: the strength of historical earnings growth, the consistency of historical earnings growth, and the stability of pre-tax profit margins. Recent history is weighted more heavily in the analysis. For those of you who are familiar with the Stock Selection Guide or Toolkit 6's Stock Study, companies that rank highest for quality will look good in Sections 1 and 2 of those reports.
There are two main tests that stocks must pass before you should add them to your portfolio -- they should be good companies, and they should be selling at reasonable prices. The Quality Index helps you find "good" companies. A Quality Index of at least 3.4 is required (these companies are "Acceptable"; 6.7 or greater is desired (these companies are "Desirable").
TIP: An easy way to find these high ranked quality companies is to use the link at the top of the Take Stock navigation panel that says "This Week's Roster of Quality Companies." This links to the StockCentral Stock Screener and a pre-defined search that shows you all companies with a Quality Rating of 3.4 or higher. It's a pretty short list these days! You can click on the Quality Index column header to sort all companies from highest to lowest, and then use the "Take Stock" link in the right column to quickly analyze the stock.
Back to Aeropostale -- with a Quality Index of 8.9, the company qualifies as a high quality company. If you want to learn more, click the Concepts button on the left side. You can also drill down into the Quality Index to learn more about the components of Quality by clicking on the Quality Index button (where the Index value is displayed). This is often helpful when you want to learn why a company doesn't make the grade. Click the blue arrow to go back Home.
The next indicator in the Take Stock analysis is the Mood Indicator. This tells you how other investors are thinking about a stock -- how do they currently value the company based upon how they have in the past. This is determined by looking at the Historical Value Ratio, a sort of modified average P/E Ratio, and comparing it to the current P/E Ratio. The Mood could be Reasonable, Hot, or Cool. Click the blue arrow to go back Home.
Finally, Take Stock shows you a suggested Buy Price. Buying the stock above this price limits your chances of reaching your overall target return and introduces excessive downside risk. Again, you can lick on the Buy Price button to drill down and learn more about how the return and risk is calculated for the company.
It's a good idea at this point to click the Summary link in the left navigation panel. The Summary provides a list of Reasons to Buy and Items to Check before taking action on any investment.
It's important to remember that Take Stock is generally very conservative in its assessment, and will make no allowances for companies that might be familiar names or products that you like!
Any individual can certainly get this far in Take Stock when analyzing a stock. Take Stock makes a great tool for novice investors, as well as for those members of your club who may be reluctant to purchase Toolkit 6 or even learn how to do an SSG.
Next, we'll learn about how Take Stock can continue your stock analysis education while letting you refine your analysis of a company. With Take Stock, you can certainly "learn while you go", increasing your knowledge while actually doing the analysis and thinking that goes into any stock decision.
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