I was on a Zoom call the other night and a participant was talking about buying a couple of stocks because they had dipped in price. His logic was that they would one day return to their former all-time highs. When I initially heard this, I instantly asked “Why do you think the stocks will go back up to prior highs”? His response was that a lot of people go to this retailer in particular. The retailer was Wingstop. Don’t get me wrong, I love Wingstop myself but as for their business, I can’t say they are the best or most popular eatery in America.
I am writing this to remind people to check the financials on companies whether you are trading them short-term or investing in them for the long-term. The financial statements such as balance sheet, income statement, and statement of cash flows will tell you the true financial wellness of a business. Just picking a stock because it has experience quite a bit of a decline is not grounds for thinking it will automatically shoot back up. If we look over the past month, many stocks have been dealt a similar blow. Some companies may be doomed in the long-term, some will be bailed out, and others will recover over the next few years. This is simply a reminder to always do your due diligence before buying into a stock. Yahoo Finance is a great place to go where you can easily locate some important financial metrics on a stock.