r/valueinvesting
What to Do Before Buying a Stock That Dipped
A value investing checklist for buying dips: distinguish macro selloffs from fundamental deterioration by analyzing gross margins, FCF, and historical valuation ranges.
- Macro-driven selloffs without negative company-specific news present genuine buying opportunities as business fundamentals remain intact.
- Stable gross margins and free cash flow serve as reliable indicators that the core investment thesis is still valid despite price drops.
- Using historical P/E ranges helps determine if a stock is genuinely undervalued rather than just cheaper than its recent peak.
- Earnings misses or multi-year margin compression suggest the price drop is a correction to reality, not an overreaction.
- Declining gross margins over several years indicate structural issues, meaning the current dip may be justified rather than a bargain.
- Buying a stock solely because it is down 30% is flawed logic if the original valuation was already inflated.
Watched a bunch of people on here buy Monday thinking the bottom was in and get wrecked by Friday. Wrote down the checklist I actually use before touching anything that's dipped.
Even if a "good" stock being down 30% isn't a reason to buy it. it's 30% cheaper than it was, which only matters if the original price was right.
Before touching anything that dipped this week, one question actually matters: why did it drop. macro selloff with no company news means the business is the same, just cheaper. Earnings miss or two years of margin compression means the price might still be adjusting to reality and you're not buying a dip, you're buying a slide.
Gross margin and FCF are the two hardest numbers to fake short term. if those are holding the thesis is probably intact. If gross margin has been going the wrong way for a couple years the drop might be correct not overdone.
And the last thing I check of course is whether it's actually cheap now or just cheaper than it was. stocksight.org is free and shows historical P/E ranges with historical P/E average, been using it for my research recently.
Ad slop
And program is also AI slob
\#1. Accenture 366% dividend yield lol
\#2. Balance sheet healthy because d/e low, but no mention of income/debt.
\#3. PE 14 is "fair value" given historical terms - but it is trading at a 50% discount to historical pe ...
\#4. It says 5y cagr is 4% (that is the 3y cagr) the 5y cagr is 9%
Absolutely dumbfounded OP doesn't check if it is working before sharing it with thousands of redditors
Thank you for actually testing it.
1.Dividend yield bug - yfinance returns it in two different formats depending on the stock; we were multiplying by 100 when it was already a percentage. Fixed.
- CAGR label was hardcoded as "5-year" even when fewer years of data were available. It now shows the actual span.
- Ratings are not perfect and should not be treated as a verdict, yet we added a bit more metrics to compute balance sheet health more fairly. We are going to improve metrics overtime.
- When a company had losses in recent years, the historical PE comparison fell back to "fair value" by default, instead of showing nothing. Fixed.
- "Since 1967" was pulling birth year from the data source, not tenure. Relabeled and it now shows "b. 1967" correctly.
I would recommend to clear your local browser's cache if you want to try it one more time. Thank you for your review again.
You make it sound like this market is rational and value can be identified. Sorry, but it isnt. None of it makes sense and I doubt you'll find a logic to it.
so keep calm and buy high
In general it's important to check the numbers and fundamentals. The best example is service Now. It has dropped a lot, but with it's current PE of 70 it's not cheap. I don't think it's going down due to AI. I rather think it was a correction
Pray
Buy Monday but get wrecked by last Friday? What are you, some kind of time traveller?
I don’t think you should always avoid a company that’s in a slide, but the key is to wait. It’ll often take 2-3 years to come back. So you have time to wait until you know it’s stabilized or on its way up. Don’t rush in.
For instance, Fiserv is arguably now oversold & will probably ultimately recover to an extent (not fully, but at least partly), but it takes a long time to fully reach bottom & will take a long time until the narrative changes. Slides aren’t quick to turnaround (and some just don’t).
i'd just add one more thing, watch forward guidance + revisions more than trailing numbers, because that’s usually where the real story shifts first. And valuation being “lower than before” doesn’t matter if the earnings power got permanently reset smh. good checklist overall, just gotta make sure youre not catching long-term downtrends thinking they’re dips
A 30% dip only matters if the original thesis is still intact, otherwise you’re just catching a falling knife lmao. I’d learn the basic guides that actually matter first; emergency fund, high-interest debt, ETFs, account types, and risk tolerance, etc
You know, it isn’t a bad time to hone one’s valuation skills. There are only a couple questions that must be answered:
- how much is it worth?
- why is it priced at the current share price instead of it’s worth?
- what are the catalysts than can happen to make the share price go up?
- how are the possible reasons for the price to to go down by 30% in the next 12 months? How can I identify them?
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Here is an example:
GE Aerospace
- it is worth around 250 to 275 by my calculation. This was done via my own DCF method. Morningstar has the price at around 307 while CFRA has the iv at 282.
- it is currently priced at 328. This is because people are very bullish about the long term prospect of the industry. Also the main players (RTX, Rolls Royce, Heico) have signalled that they do not see a slow down.
- the long term catalysts are (1) Asia growing at 10% cagr sales for airplanes as China and India middle class grows and fly more often. (2) demand for planes outstripping supply and hence older planes need to fly longer and be maintained longer. Ge works on a Razor and blade model: seller the engines at a loss and make money from maintenance.
- if I were to buy at the current price of 328, and it falls by 30%, the reason will be valuation, fear of a recession, and war penalising air travel. Red flags to watch out for will be continued weakness in air travel for this year as mentioned by the ceo during the latest Concall. It would be important to listen in the upcoming conference call in July 2022 to see if demand has softened.
- if the share price were to dip to 270
I will nibble again and at 250 I will start selling other stocks to raise cash to buy GE.