Forget Screeners and Hot Tips: Here's How I Actually Research a Stock Using Fundamentals That Matter

Key Points Revenue growth is a key factor in long-term investment returns. Business quality will help sustain the company's durability. Management decisions are crucial for generating value for shareholders. These 10 stocks could mint the next wave of millionaires › Many investors will buy a stock simply because someone told them to, without understanding how a business works. Others will simply buy because it has a low valuation multiple, such as the price-to-earnings ratio ( P/E ). Both these strategies are a recipe for disappointing results. When looking for stocks to buy and hold for a decade or longer, there are fundamentals that matter much more than others. Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue » Here is how I research a stock from scratch, utilizing three metrics -- revenue growth, business quality, and management -- to assess whether it is a business worth betting on. Betting on revenue growth According to a study run by the Boston Consulting Group, if you own a stock for one year, the most important metric for expected forward returns is the starting earnings multiple, such as the P/E ratio. However, the best investors do not invest for one year, but a decade or longer, allowing them to enjoy years of multi-bagger returns. When you look back on what drives stock returns over a 10-year period, revenue growth is the most important factor. Simply, you want to own the companies that will put up the highest levels of durable growth over a decade or longer, such as Amazon , Netflix , or other technology winners of the 21st century. The best way to hunt for stocks that can deliver strong revenue growth in the future is to look for those growing quickly today. Then, it is important to analyze whether they are gaining market share in their sector, how large the business is today, and how large its addressable market is. A company with 50% market share in a $1 billion sector will have much lower growth potential than a firm with 1% market share in a $100 billion sector. The latter is where the durable revenue growers can be found. Image source: Getty Images Business quality and moats The second area that matters in analyzing whether a stock is worth owning is business quality. In other terms, investors will describe this as a competitive advantage or a competitive "moat" around the business. A competitive advantage is important when hunting for durable growth stocks because it helps keep revenue and earnings growing over the long term. For example, a durable growth stock like Amazon has done so well for so long because of its superior value proposition for e-commerce delivery in the United States, which keeps customers around and spending more year after year. When combined with market-share gains, a business with a high-quality competitive advantage can grow its earnings significantly over a decade. Management smarts The good thing about investing in growing, high-quality businesses is the cash that starts piling up on the balance sheet from the earnings and free cash flow they generate. The downside is needing a management team that will take care of your earnings as a shareholder. Management teams are vital if one is to invest with a long-term time horizon, because one is entrusting them to act intelligently in deciding what to do with the earnings piling up on the balance sheet. I personally like management teams that make decisions between two options. First, if there is ample opportunity to take cash and reinvest at a high return on invested capital ( ROIC ), they should do so to reinforce future earnings growth. Second, if there are no good opportunities for reinvestment, the cash should be returned to shareholders through repurchases or dividends. In plainer terms, executives should either invest to grow if there is an intelligent way to do so, or else relinquish control of the cash and give it to the stockholders. These three pillars -- revenue growth, business quality, and management's capital allocation -- help guide me in my stock investing decisions, and I think they can help you as well. Don’t miss this second chance at a potentially lucrative opportunity Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this. On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves: Nvidia: if you invested $1,000 when we doubled down in 2009, you’d have $567,509 !* Apple: if you invested $1,000 when we doubled down in 2008, you’d have $63,383 !* Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $417,413 !* Right now, we’re issuing “Double Down” alerts for three incredible companies, available when you join Stock Advisor , and there may not be another chance like this anytime soon. See the 3 stocks » *Stock Advisor returns as of September 13, 2026. Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Netflix. The Motley Fool has a disclosure policy .

Revenue growth is a key factor in long-term investment returns.

Management decisions are crucial for generating value for shareholders.

Many investors will buy a stock simply because someone told them to, without understanding how a business works. Others will simply buy because it has a low valuation multiple, such as the price-to-earnings ratio ( P/E ).

Both these strategies are a recipe for disappointing results. When looking for stocks to buy and hold for a decade or longer, there are fundamentals that matter much more than others.

Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue »

Here is how I research a stock from scratch, utilizing three metrics -- revenue growth, business quality, and management -- to assess whether it is a business worth betting on.

According to a study run by the Boston Consulting Group, if you own a stock for one year, the most important metric for expected forward returns is the starting earnings multiple, such as the P/E ratio. However, the best investors do not invest for one year, but a decade or longer, allowing them to enjoy years of multi-bagger returns.