Re: Biggest things you look for in a stock?
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The only time i dont' like a stock with debt is when the debt is more than its total cash.
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That's not automatically terrible. You have to look at the big picture. Although, more cash than debt is usually a good sign. I know that its not automatically terrible.
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But if some companies future doesn't look to be very profitable then I can't see it being a great thing.
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I'll jump in here and give my view... I'm hoping that JB will give his view later.
Comparing cash to the amount of debt a company has decided to take on does not really say anything about profitability. Also, theoretically, a company will do the best if it takes on as much debt as possible as long as it can safely handle it and a favorable return can be achieved. When debt is assumed, the goal is to generate a return that surpasses the rate of borrowing. And, over time this difference in rates compounds.
Also, you will see that companies that have been active in acquisitions often have a lot of debt. A couple of companies that have a debt/cash ratio greater than 1 are: Harrah's (HET) and Capital One (COF). Yes, carrying a lot of debt can be scary, but if well managed, can produce superior returns.
Just my two cents. Others may totally disagree with my view on debt. Also, I believe that most people tend to use the Current Ratio or Quick Ratio to analyze liquidity. I personally haven't seen that much use of the Cash Ratio.
-RMJ
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