How do I evaluate a stock before buying?

Focus on durable earnings and cash flow. Check ROIC, margins, debt, and free cash flow. Assess the moat and quality of management’s capital allocation. Look at growth runway, competitive landscape, and catalysts. Compare valuation to peers using P/E, P/FCF, and EV/EBITDA. Don’t chase hype.

When I started investing, I built a simple checklist and stuck with it for a year before buying anything. I pulled the latest annual report, scanned five years of revenue and earnings, and checked free cash flow per share. I wanted a business that could grow without needing constant new capital, so I looked at ROIC trends and debt maturity schedules. I also watched how executives allocated capital, buybacks, dividends, and strategic acquisitions, because that tells you where the moat is widening or shrinking. Then I ran a rough two-stage valuation: a base-case growth rate, a bull case, and a bear case, using P/E, P/FCF, and EV/EBITDA against peers. The breakthrough came when the story in the numbers aligned with the narrative in the filings: durable margins, stable cash conversion, modest leverage, and a clear path to expanding share of a large addressable market. I waited for the price to trade at a discount to my calculated value and sized the position small at first, then added only as the thesis proved itself. Mistakes taught me patience and a tighter checklist.