Before
you buy your next stock, understand this 5-minute valuation checklist
Most
retail traders jump into a stock because of hype, a pretty chart, a random
headline, or something their cousin’s barber said on TikTok, but if you can’t
explain why a stock is undervalued or overvalued in under five minutes, you’re
not investing… you’re basically spinning a roulette wheel with logos on it.
Here is a checklist I use as a full time trader before I put my real hard earned money into it. This is for long term investing, but even for swing trading, or longer period day trades where most investors rely on just technicals, I prefer to only trade stocks that have some fundamental backup.
1. Revenue Trend: Is the business really growing?
I look for:
-Positive Year over year growth
-Consistent Quarterly growth
-No Sudden drops buried in segments
If revenue is shrinking while stock is pumping, that’s a red flag for me.
2. Profitability: Is the business profitable?
-Does it have positive EBITDA?
-Positive Operating Income?
-Net Income Trending upward?
-Gross Margins 40% or greater? I really like companies with higher gross margins, as that means as they grow, they have more money pumping to the G&A side, marketing etc… this can create a powerful flywheel with growth.
3. Balance Sheet Strength: Can the company survive a downturn?
- I like companies with cash > then debt.
-Low or Moderate Debt to Equity Ratios
-Strong Current Ratio 1.5+ is comfortable or more
4. Valuation
You don’t need a ful DCF for a quick screen, but if it makes the screen, I will use AI, a DCF spreadsheet, or run in Alphaspread.com a DCF, Peer Valuation and Intrinsic Value before I buy
-P/E vs its sectors? (Seeking Alpha makes these tasks easy)
-EV/EVITDA vs peers
-Price to Sales vs 3/5 year history
If all 3 are at extreme highs, while fundamentals lag then Ill move on.
5. Insider Buying or Selling
-If mgmt. selling during a rally? No bueno
-Insiders accumulating at low? Good sign
Insiders know whats going on on the business more then anyone else, good to pay attention to their buying and selling moves.
6. Catalysts & Risks?: Use a Deep Research AI scan prompt, Red Light/Green Light Prompt or start reading news, earnings reports and transcripts, and press releases from the company.
Scan:
-Earnings
-Guidance Changes
-Major Product Launches
-FDA/Regulatory Risk
-Lawsuits
-Leadership Changes
-Debt Maturities
-Dilution Risk(Especially small and micro caps very common)
This scan is important even though requires the most work, as it often determines whether the stock stays undervalued, or if these catalysts can actually start to get the stock moving.
Run this checklist on your current holdings to see if your holding something with real fundamental, or if your holding something because the chart looked good on tiktok and comments said “trust me bro”
Now for the fun part, use this AI prompt to help double check your work:
Prompt:
CHATGPT PROMPT BELOW:
Here is a checklist I use as a full time trader before I put my real hard earned money into it. This is for long term investing, but even for swing trading, or longer period day trades where most investors rely on just technicals, I prefer to only trade stocks that have some fundamental backup.
1. Revenue Trend: Is the business really growing?
I look for:
-Positive Year over year growth
-Consistent Quarterly growth
-No Sudden drops buried in segments
If revenue is shrinking while stock is pumping, that’s a red flag for me.
2. Profitability: Is the business profitable?
-Does it have positive EBITDA?
-Positive Operating Income?
-Net Income Trending upward?
-Gross Margins 40% or greater? I really like companies with higher gross margins, as that means as they grow, they have more money pumping to the G&A side, marketing etc… this can create a powerful flywheel with growth.
3. Balance Sheet Strength: Can the company survive a downturn?
- I like companies with cash > then debt.
-Low or Moderate Debt to Equity Ratios
-Strong Current Ratio 1.5+ is comfortable or more
4. Valuation
You don’t need a ful DCF for a quick screen, but if it makes the screen, I will use AI, a DCF spreadsheet, or run in Alphaspread.com a DCF, Peer Valuation and Intrinsic Value before I buy
-P/E vs its sectors? (Seeking Alpha makes these tasks easy)
-EV/EVITDA vs peers
-Price to Sales vs 3/5 year history
If all 3 are at extreme highs, while fundamentals lag then Ill move on.
5. Insider Buying or Selling
-If mgmt. selling during a rally? No bueno
-Insiders accumulating at low? Good sign
Insiders know whats going on on the business more then anyone else, good to pay attention to their buying and selling moves.
6. Catalysts & Risks?: Use a Deep Research AI scan prompt, Red Light/Green Light Prompt or start reading news, earnings reports and transcripts, and press releases from the company.
Scan:
-Earnings
-Guidance Changes
-Major Product Launches
-FDA/Regulatory Risk
-Lawsuits
-Leadership Changes
-Debt Maturities
-Dilution Risk(Especially small and micro caps very common)
This scan is important even though requires the most work, as it often determines whether the stock stays undervalued, or if these catalysts can actually start to get the stock moving.
Run this checklist on your current holdings to see if your holding something with real fundamental, or if your holding something because the chart looked good on tiktok and comments said “trust me bro”
Now for the fun part, use this AI prompt to help double check your work:
Prompt:
CHATGPT PROMPT BELOW:
**“Act as though you are an expert wall street analyst and Analyze the following stock using a simple checklist.
Ticker: [INSERT TICKER]
Follow each section in order and keep the explanations beginner-friendly but accurate.
At the end, give a final Valuation Verdict (Overvalued, Fairly Valued, Undervalued) with a 1–2 sentence summary.
1. Revenue Trend (Growth Check)
• Show YoY revenue growth
• Show last 4 quarters trend
• Mention any major drops or segment weaknesses
• State in 1 sentence whether growth trajectory looks strong, weak, or inconsistent
2. Profitability Snapshot
Check and explain in simple terms:
• EBITDA (positive or negative?)
• Operating income trend
• Net income trend
• Are margins expanding or shrinking?
Finish with: “Profitability quality: Strong / Moderate / Weak.”
3. Balance Sheet Strength
Explain the following clearly:
• Cash vs total debt
• Debt-to-equity
• Current ratio
• Any near-term debt risks or dilution risks
Finish with: “Financial stability: Strong / Moderate / Weak.”
4. Quick Valuation Scan
Compare current valuation to sector averages:
• P/E
• EV/EBITDA
• Price/Sales
• How current valuation compares to historical range for this company
Finish with: “Valuation looks: Cheap / Reasonable / Expensive.”
5. Insider Activity
Summarize:
• Insider buying (is it meaningful?)
• Insider selling (normal or concerning?)
State whether insider sentiment is: Positive / Neutral / Negative.
6. Catalysts & Risks
Briefly explain:
• Next earnings date
• Any guidance changes
• Major product news
• Regulatory or legal issues
• Dilution or debt concerns
End with: “Catalyst outlook: Positive / Mixed / Risky.”
Final Verdict
Provide 3 things:
Valuation Verdict (Overvalued / Fair / Undervalued)
1–2 sentence reasoning
What type of investor or trader this stock may be suitable for (long-term, swing, speculative, avoid, etc.)
Give the entire analysis in a clean, readable format.”**