9 Signs Of A Stock’s Decline

As a stock market investor, if you are able to buy stock low and sell when prices have reached their peak you could class yourself as a successful investor.

Knowing when the stock market is in decline is therefore one of the things every investor should be constantly on the lookout for, as this will allow you to protect the investments you have made and protect yourself from suffering any major losses in the stock market.

If you invest in the stock market, be on the lookout for any of the following nine signs which could indicate that your stocks are in decline.

1 - Earnings Slow Down

In the long term, a company can only exist if it is making profit. If a company doesn’t make any profit, this usually indicates it is in poor financial condition and its earnings are declining.

Pay close attention to the earnings of the companies you are invested in. Are they increasing? Or are they decreasing? And if so why?

If you find that earnings have dropped with a company you are invested in, don’t panic as it could be temporary.

Apple for example, experienced years of low earnings and appeared to be in decline until Steve Jobs came back and turned the company around.

What you should be looking for is how a company is doing in the current economic climate, how it is doing compared to other companies in that industry and how that industry itself is doing.

The bottom line is that a company’s earnings are the most important measure of its success, and if they aren’t doing well, then the company probably isn’t either.

2 - Sales Slow Down

When investing in the stock market you should ideally be looking for companies that have strong and rising sales, or have the potential for such growth in the future.

If sales start to decline, this ultimately affects earnings which then affects the value of your stocks in the stock market.

Sales for a company should consistently rise. If they are not rising this may be due to the economy, the company having marketing problems, a competitor eating away at its market share or new technology replacing its products and services.

Whatever the reason, if sales are slowing down this is a red flag you should pay attention to as it could signal that your stocks are in decline.

When analysing sales look at sales in terms of what the company usually sells, its products and services.

If a company sells something else such as equipment, real estate or a subdivision of its business (which it doesn’t normally sell), then this could create an artificial blimp in its sales figures giving you a false impression of the company’s financial strength.

3 - Excited Stock Market Analysts

Sometimes you may hear a stock market analyst talking up a particular stock, even though your own research tells you that stock is a loser.

Unfortunately, in the world of the stock market, you can’t believe everything you hear because some analysts are employed by companies who use them to promote their own interests.

Be on the lookout for stock market analysts who give glowing recommendations to companies who have no income and lots of debt. When the pros say buy, that’s usually when it’s a good time to sell your stock.

4 - Stock Market Insider Selling

Heavy insider selling is one of the sure signs that a stock is in decline. This occurs when stock market investors are trying to get out before the value of those stocks hit rock bottom.

If you notice the president of a company, the treasurer, the vice president of finance or any other signification member within a company selling their stock then you can consider that to be a big red flag.

5 - Dividend Cuts

For stock market investors who own income stock, dividends are the primary consideration for them.

Sometimes if a company is having financial difficulty it may cut dividend payout rates, and in some cases, this can be a good thing for the overall health of a company.

However, most stock market analysts see dividend cuts as a sign that a company is having trouble with its earnings or cash flow.

So look out for dividend cuts as they may be an early warning sign that a company is in financial decline, and that soon afterwards the value of your stocks could follow.

Try to find out why dividends are being cut. The cut may be a temporary measure, or it could be a sign of deeper trouble. Find out what’s going on before you make any decisions about whether to sell your stock.

6 - Increased Negative News Coverage

Negative reporting about a company in the media can very often lead to declining stock prices in the stock market.

Look out for such negative reporting and investigate whether what is being reported is true or not. If what is being reported is true, then it is probably time to sell that stock.

7 - Industry Problems

Being a large company is no guarantee that you will be around forever. Large companies are not too big fail, especially if they are in a declining industry.

If you are invested in a company which is doing well, look at how the industry it is in is doing. If that industry is headed for a decline, or is in decline, then the decline of your company and the value of your stocks will be soon to follow.

In addition to this, also pay attention to the health of related industries, as problems in one industry can quickly spread to a related industry.

If you are concerned about your investments, protect them with trailing stop loss orders.

8 – Political Intervention

Taxes, regulations or other government actions can easily break up a company and put its stock prices in decline.

If you are invested in a company which is sensitive to political developments, make sure you are well informed by reading relevant financial publications.

In the past drug, tobacco and computer companies such as Microsoft have suffered in the stock market due to government actions.

So it definitely pays to stay up to date with such developments, so that you can react quickly should anything of significance happen which could affect the value of your stocks.

9 - High Levels Of Debt

High levels of debt are a major warning sign that a company is in financial trouble. Too much debt can eventually result in the company going bust, just like Enron did.

Enron provides a good example of debt because one year before its collapse, it was being recommended by many stock market analysts as one of the top ten stocks to buy for the long haul.

This was despite the fact that anyone who looked at the fundamentals could see that this was not the case.

So regardless of what people tell you about how great a particular stock is, always make sure you look at the fundamentals first.

If you find out that a company has high levels of debt which you don’t think they will be able to control, stay away or get out as there is a good chance they are headed for decline.

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