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A quick ratio of a company can determine a lot of assets about a corporation. Similar to the Treynor Ratio, a quick ratio formula can help determine a corporation’s financial strength- or lack of strength. In this era of COVID-19 and an economic downturn, a quick ratio of a company can help investors determine if a corporation has enough liquidity to weather a financial storm. With the quick ratio formula, investors can help plan their investment strategies.

This TradingSim article will help investors calculate the quick ratios of 10 of the top corporations. In this article, I will also compare them to see which one has the most liquidity to pay off short-term debts. Investors can use this information to possibly rebalance their portfolios.

What is the quick ratio formula?

A quick ratio formula measures a company’s short-term liquidity. A quick ratio definition means that the ratio incorporates a corporation’s ability to use its cash-ready assets to pay off debt. The short-term liquidity measure is also known as the acid test. The term quick ratio comes from a company’s ability to quickly convert assets into cash.

When calculating the quick ratio of a company, the formula is as follows:

[Current assets-inventory-prepaid expenses]/current liabilities=quick ratio

When including a corporation’s marketable securities, they include common stock, certificates of deposit, or government bonds. Accounts receivable is money a customer owes a company that can be collected in 90 days.

How to calculate a quick ratio

When determining liquidity, there are specific steps to calculate the quick ratio of a company.

Run a balance sheet. Corporations can run a standard balance sheet that takes into account liability and asset information. When companies run a balance sheet, a standard balance sheet can be better than a summary balance sheet. A standard balance sheet provides more details than a summary balance sheet.
Calculate assets. A quick ratio of a company can calculate liquid assets. When calculating assets, a corporation can include cash, accounts receivable, and funds that haven’t been deposited. Corporations don’t include inventory and prepaid expenses in calculating assets. They can’t quickly be converted to cash.
After running a balance sheet and calculating assets, companies can calculate current liabilities. Short-term debt that’s paid off within a year is part of a current liability. When a company calculates liabilities, the liabilities can include payroll and accounts payable. The liabilities can also include credit card debt and payable sales tax.
Complete the quick ratio of a company. Once a corporation has calculated its assets and liabilities, that quotient will determine the ratio.

What is a good quick ratio?

In determining a good quick ratio of a company, there are some numbers that are important. A total of one is usually a good number. That quotient means that for every $1 of liability, there is $1 of assets. A ratio below one typically means that a corporation may not have enough cash to pay off short-term liabilities.

A ratio of 15 means that for every $1 of liabilities, a company has $15 of assets. While a high ratio can be good, one that is too high can be detrimental. If a ratio is too high, that means the company may not be efficiently using its cash reserve.

What does a quick ratio of a company tell investors?

Corporations on Dow Jones can determine a quick ratio of a company

When investors look at the quick ratio of a company, a quick ratio interpretation can give investors a lot of information. A low ratio can lead to a negative quick ratio interpretation. A lower ratio tells investors that a corporation doesn’t have enough liquidity to withstand a bear market. A high ratio tells investors that a company has enough cash on hand to cover near-term debt-especially in an economic downturn.

What is the difference between quick ratio vs. current ratio?

While a quick ratio of a company is one way to determine the liquidity of a company, there are other ways as well. A current ratio also measures a corporation’s short-term liquidity. However, a quick ratio is more stringent than a current ratio because it has fewer items to configure its calculations.

A current ratio is calculated as follows:

Current assets/current liabilities

In contrast to a quick ratio’s shortened criteria, a current ratio calculates more factors. While a current ratio’s formula is shorter, it includes all the current assets of a corporation. For example, a current ratio includes inventory and prepaid expenses. Those factors are excluded from a quick ratio of a company.

Another difference in current ratio vs. quick ratio is that a current ratio measures liquidity over a longer period of time. A quick ratio of a company measures assets that are converted to cash in three months.

While there are slight differences between current and quick ratios, there are similarities. Both ratios calculate the liquidity of a company. In addition, a current ratio of one and above is a good sign for a company. A current ratio below one is a sign a company can’t pay its debt.

Is a quick ratio the best measurement of a stock’s liquidity?

A company’s liquidity can help sustain it even during a difficult economic period. Despite having a poorly performing Q1 2020 and quick ratio of 0.37, upscale retailer Nordstrom’s still has strong liquidity. Even though it isn’t a value stock , Nordstrom reported it has enough liquidity to survive a worse-than-expected earnings report.

Nordstrom’s CEO, Erik Nordstrom, noted that Nordstrom still has enough liquidity to carry it through Q2 2020.

“We’re entering the second quarter in a position of strength, adding to our confidence that we have sufficient liquidity to successfully execute our strategy in 2020 and over the longer term,” said Nordstrom.

While the quick ratio of a company is not the ultimate arbiter of a stock’s financial health, it is a strong measurement to determine a company’s liquidity.

Comparison of quick ratios: Amazon vs. Walmart

Both Amazon and Walmart are the biggest retailers in the world. I will compare both corporations’ quick ratios to see which corporation can better cover short-term liabilities.

Amazon resilient in bear market

Amazon (NASDAQ:AMZN) is the most valuable company in the world. The online e-commerce behemoth has been a recession-proof stock during the current recession. Chantico CEO and asset allocation expert Gina Sanchez noted that Amazon has benefited from the recent quarantine.

Amazon’s quick ratio can be related to stock performance

“Amazon is the big winner in all of this because everyone [putting] off going to the grocery store has ordered directly from Amazon, has ordered anything they need from any store as most retail has been shut down from Amazon. I think Amazon has the longest, broadest story that would come out of this with the trends still intact,” said Sanchez.

Amazon is also performing so well that during a recession, the corporation hired 125,000 temporary workers since the nationwide shutdown. Amazon CFO Brian Olsavsky noted that demand for workers will grow during the summer.

“Demand has been strong and the biggest questions we have in Q2 are more about ability to service that demand,” said Olsavsky.

Amazon’s strong sales and hiring surge prove that the corporation and its stock are robust in this economic downturn.

What is Amazon’s quick ratio?

As of March 2020, Amazon’s current assets are $67.13 billion. Amazon’s current liabilities total $79.71 billion. So, the quick ratio formula is:

67.13/79.71=0.84.

Amazon’s quick ratio is 0.84. While I mentioned earlier that a quick ratio below 1 is a negative sign for a corporation, obviously Amazon is financially sound. Amazon may have other reasons why it may be more difficult for the company to meet its short-term obligations.

The quick ratio of a company may be lower than one because of high inventory turnover or increased inventory, especially in the retail industry. Inventory isn’t accounted for in a quick ratio formula.

Walmart performs well during COVID-19

Walmart(NYSE:WMT) is another stock that has performed well during the coronavirus crisis. In Walmart’s Q1 2021 earnings report, CEO Doug McMillon noted that increased sales of groceries and cleaning materials helped the corporation reach $134.62 billion while people were quarantined.

“We experienced unprecedented demand in categories like paper goods, surface cleaners, and grocery staples. For many of these items, we were selling in two or three hours what we normally sell in two or three days,” said McMillon.

Analysts rate Walmart a buy

Because of Walmart’s strong sales, financial analysts rate Walmart stock a buy. Garrett Nelson is a senior equity analyst at the CFRA research firm. Nelson rated Walmart as a strong pick for investors in a note to clients.

“Walmart remains one of our top picks, as we see it as a ‘pandemic winner’ that is likely to pick up share from the distress taking place across retail, particularly small businesses, department stores, and others levered to shopping malls,” wrote Nelson.

Neil Saunders, managing director at GlobalData Retail, also noted that Walmart is a buy-even more so than Amazon.

“That Walmart has outperformed Amazon, at least in growth terms, underlines both the deficiencies of Amazon in grocery – which generated the bulk of sales this quarter – and Walmart’s growing power in the segment,” said Neil Saunders, managing director at GlobalData Retail.

What is Walmart’s quick ratio?

As of April 2020, Walmart’s current assets excluding inventory is $22.1 billion. Walmart’s current liabilities are $82.65 billion. The equation would then be:

22.1/82.65=0.27

In comparison between Amazon and Walmart, 0.84 is greater than 0,27. Amazon’s quick ratio is higher than Walmart’s ratio.

Walmart inventory make company’s liquidity lower than Amazon’s quick ratio

Walmart has a lower quick ratio because of its increased inventory. Because Walmart has more physical inventory than Amazon, which isn’t included in quick ratios, Amazon ranks higher.

In addition to inventory, Walmart’s quick ratio is lower than Amazon’s quick ratio because of debt. Even though Amazon has expenditures of $4 billion, Walmart’s expenditures are topping $900 million for Q1 2021. Because Walmart has more inventory and increasing expenses, its quick ratio is lower than Amazon’s quick ratio.

Walmart’s expenses increased because of its extra bonuses to workers and increased spending on sanitizing store locations. Brent Biggs, Walmart’s chief financial officer, noted that added expenses could add to Walmart’s liability.

“[W]e’ve already announced a second round of special bonuses in the U.S. which that will financially hit in the second quarter,” said Biggs.

The increased expenses and physical inventory give Amazon’s quick ratio an edge over Walmart.

Comparison of quick ratios: Apple vs. Google

Apple and Google are rivals in the smartphone market with Apple’s iPhones battling Google’s Android system. Both corporations have become giants in tech with their innovation. But which company has the best quick ratio?

Apple has positive Q2 2020 earnings report

In Apple’s(NASDAQ:AAPL) Q2 2020 earnings report, Apple had an increase in revenue. The company’s iPhone sales declined because of the coronavirus slowing down production in China. Chief financial officer, Luca Maestri, noted that Apple Watches and other wearable devices still had strong sales.

“Today Apple reports $58.3 billion in revenue, an all-time record for services and a quarterly record for Wearables, Home and Accessories. It was also a quarterly revenue record for Apple Retail, powered by phenomenal growth in our online store. Amid the most challenging global environment in which we’ve ever operated our business, we are proud to say that Apple grew during the quarter,” said Maestri.

Apple stock can rise with high quick ratio

Maestri also noted that Apple would continue its growth and commit and contribute more to the U.S. economy.

“We are confident in our future and continue to make significant investments in all areas of our business to enrich our customers’ lives and support our long-term plans — including our five-year commitment to contribute $350 billion to the United States economy,” added Maestri.

Analysts pick Apple stock as a buy

Even though Apple’s sales increased in the U.S., Apple has struggled to maintain a foothold in India. Despite that, JP Morgan Chase Samik Chatterje rates Apple stock as a buy. He believes that if Apple iPhone SE sales increase in India, Apple’s price target could rise from $350 to $365.

“Apple has struggled to date to build a material presence in India on account of premium price positioning as well as other drivers,” he wrote, We estimate if Apple were able to capture roughly half of the 30 million to 35 million opportunity, it would translate into a 215 million steady annual replacement run-rate for iPhones globally and a $7 billion revenue or $0.70 cents of EPS upside,” noted Chatterje.

Evercore ISI analyst Amit Daryanani is another financial analyst that’s bullish on Apple stock. He believes that Apple is a stock that will continue to outperform.

“Apple continues to offer the best risk/reward in large-cap tech and long-term investors should use any weakness to add to positions,” said Daryanani.

Daryanani also noted that Apple could also have a $2 trillion market value in the future.

“This implies EPS growth of 14% over next several years driven by combination of operational tailwinds and buyback support,” said Daryanani.

What is Apple’s quick ratio?

As of March 31, Apple’s assets minus inventory total $140.42 billion. The company’s liabilities equal $96.09 billion. The quick ratio formula is:

140.42/96.09=1.46.

Therefore, Apple’s quick ratio is 1.46. That’s well above the standard for a quick ratio of a company.

Google Q1 2020 earnings report shows minimal fallout from ad revenue drop

Google’s (NASDAQ:GOOG) Q1 2020 earnings report was $41.16 billion, a strong showing despite a drop in ad revenue over the last few months. As a result of the economic slowdown, many corporations are not spending as much to advertise on Google as they did pre-pandemic.

YouTube drives Google revenue growth

Despite the decline in ad revenue in March, the decline wasn’t as deep as expected. YouTube has been a bright spot with its surge in revenue. The video-sharing site’s Q1 2020 revenue jumped by 36% to $15 billion. Google’s parent Alphabet chief financial officer Ruth Porat, spoke about YouTube, one of Google’s most valuable acquisitions.

“[For YouTube], the biggest part of ad revenue is Brand and we’re really excited about that and the upside there… One of the things we’re extremely focused on is ensuring that we’re providing advertisers with the tools they need to really present their brand the way they want, how they want and really to protect and measure that,” said Porat.

Analysts bullish on Google stock

Morgan Stanley analyst Brian Nowak says Google stock is a buy because the corporation is branching out into gathering health care data and moving into education.

“We are particularly positive on its emerging e-commerce products (shopping listings, virtual show rooms, deep linking, etc), focus on [small and medium-sized businesses], and efforts to drive digital transformation in the healthcare and education industries. Google’s Waymo autonomous vehicles business is also the market leader in AV technology,” said Nowak.

What is Google’s quick ratio?

In this equation to determine Google’s quick ratio, I’ll look at the current assets excluding inventory and liabilities. Google’s assets as of March are $146.13 billion. Google parent Alphabet’s liabilities total $40.19 billion. Therefore, the quick ratio formula is:

146.13/40.19=3.64

Google’s quick ratio is 3.64. That quotient is much higher than Apple’s 1.46. Google is more likely than Apple to be able to pay off short-term liabilities.

Quick ratio comparison: Twitter vs. Facebook

Trump war on social media affects Twitter stock

President Donald Trump has affected Twitter’s(NASDAQ:TWTR) stock. The social media site has been under fire from the president for fact-checking several of his latest controversial tweets and flagging some other messages. Twitter explained why it felt the need to flag a recent tweet of Trump’s for “glorifying violence.”

“We’ve taken action in the interest of preventing others from being inspired to commit violent acts, but have kept the Tweet on Twitter because it is important that the public still be able to see the Tweet given its relevance to ongoing matters of public importance,” noted Twitter.

Trump has threatened to sign an executive order to give the Federal Communications Commission more power to regulate Twitter.

While Twitter stock initially fell 4% last week after Trump’s threat, financial analysts say that Twitter stock won’t stay down for long. Baird Capital analyst Colin Sebastian wrote in a note to clients that Trump’s criticism won’t always adversely affect Twitter stock.

“It is difficult for us to see how the dispute over content moderation would meaningfully impact the vast majority of social media usage. Consequently, we would not expect any material impact on revenue, as advertisers will follow traffic and eyeballs,” wrote Sebastian.

Twitter has better-than-expected Q1 2020 earnings report

Twitter had a positive past earnings report in Q1 2020. However, Twitter had a downturn in its ad revenue.

“Revenue was $808 million in Q1, up 3% year over year, reflecting a strong start to the quarter that was impacted by widespread economic disruption related to COVID-19 in March. Reduced expenses partially offset the revenue shortfall, resulting in an operating loss of $7 million,” said Twitter.

Twitter also suffers from advertising decline

In addition to Google, Twitter also had a decline in ad revenue because of the COVID-19 crisis slowing down business. The company noted the at economic downturn hurt advertising revenue numbers.

“As an indication of the rapid change in advertising behavior, from March 11 (when many events around the world began to be canceled and we made working from home mandatory for nearly all our employees globally) until March 31, our total advertising revenue declined approximately 27% year over year,” noted Ned Segal, Twitter’s chief financial officer.

What is Twitter’s quick ratio?

As of March 2020, Twitter’s current assets minus inventory total 8467.579. Twitter’s liabilities equal 710.02. In the quick ratio formula,

8467.579/710.02=11.93

Therefore, Twitter’s quick ratio is 11.93.

Facebook stock caught in Trump tirade

Just as Twitter stock dropped slightly after challenging Trump, Facebook(NASDAQ:FB) stock dipped after the company also caught in Trump’s war on social media.

Facebook CEO Mark Zuckerberg noted that he disapproved of Trump’s attempts to control social media companies.

“I’ll have to understand what [the President] actually would intend to do, but in general I think a government choosing to censor a platform because they’re worried about censorship doesn’t exactly strike me as the right reflex there,” said Zuckerberg.

In contrast to Twitter, Facebook isn’t flagging Trump’s posts and refuses to fact-check posts on their site.

“I just believe strongly that Facebook shouldn’t be the arbiter of truth of everything that people say online. Private companies probably shouldn’t be, especially these platform companies, shouldn’t be in the position of doing that,” said Zuckerberg.

Analysts bullish on Facebook because of foray into online shopping

Before the controversy around Facebook, analysts rated Facebook as a buy. Many of them believe that the controversy will have a short-term effect on Facebook stock. Financial analysts believe that since Facebook announced an e-commerce division of the site, Facebook Shops. Deutsche Bank analysts wrote in a note to clients that Shops could be a multibillion revenue stream for Facebook.

“We think Facebook Shop in a simplistic bull case could drive up to as much as a $30 [billion] revenue opportunity, across a combination of take-rate driven transactional and advertising revenue,” wrote the analysts.

Facebook stock can be independent of a quick ratio

AB Bernstein analysts also rated Facebook stock a buy because of the new Shops venture. They believe that Facebook can be a vital part of e-commerce like Amazon.

“We have long viewed FB as the ‘rent’ to the digital economy and a core component of the online retail ecosystem,” the analysts wrote.

What is Facebook’s quick ratio?

As of March 2020, Facebook’s current assets excluding inventory are $69.349 billion. The social media’s company’s liabilities total $15.69 billion. To calculate the quick ratio formula, the equation would be as follows:

Facebook’s quick ratio formula is: 69.349-/15.69=4.60

Therefore, Twitter’s quick ratio of 11.93 is much greater than Facebook’s 4.60. Twitter has a greater ability to pay off short-term debt than Facebook.

Comparison of quick ratios: Uber vs. Lyft

Uber (NASDAQ:UBER) and Lyft (NASDAQ:LYFT) are competing ride-sharing services that have been struggling as people are staying home during the quarantine. Despite the troubles the companies are experiencing, they have different quick ratios.

Uber touts liquidity in Q1 2020 earnings report

Uber’s Q1 2020 earnings report was positive despite COVID-19’s effect on the company’s ridership numbers, creating $2.9 billion in losses. The corporation made $3.5 billion in revenue, a 14% increase. Uber’s chief financial officer, Nelson Chai, noted that the company has enough liquidity to weather the current economic volatility.

“Our ample liquidity provides us with substantial flexibility to navigate the current crisis, but we are being proactive and taking actions to emerge stronger and more focused as a company,” said Chai.

Uber also said that while ridership fell, the company had success with its food delivery service Uber Eats. CEO Dara Khosrowshahi noted that Uber stock should rise once the economy re-opens.

“Along with the surge in food delivery, we are encouraged by the early signs we are seeing in markets that are beginning to open back up,” said Khosrowshahi.

Some analysts bullish on Uber after cost cuts

Financial analysts rate Uber stock after its positive earnings report. As Uber cut its workforce, the company has cut costs. Ironically, Uber’s decision to eliminate 6,000 jobs lifted the stock up and is a good sign to CFRA analyst Angelo Zino. Zino wrote in a note to clients that Uber’s ride-sharing division can be more profitable with fewer overhead costs.

“We[CFRA] applaud [the cost savings] as it will allow the Rides segment to be profitable at a much lower run rate. We anticipate a tempered recovery in the ridesharing market without a vaccine for Covid-19, with the segment unlikely seeing previous peak volume over the next 2 years,” wrote Zino.

“That said, we see UBER being profitable on an adjusted EBITDA basis by the second half of ‘21. We believe the moves (includes office reductions) will allow UBER’s cost structure to become more variable,” added Zino.

Bank of America Securities analyst Justin Post is also bullish on Uber stock after the cost-cutting measures.

“We think these changes underscore a more focused and mature Uber and will likely result in an accelerated path to break-even if end markets recover,” wrote Post.

Other analysts see slow recovery for rideshare stocks

Even though Uber and Lyft have survived the economic slowdown, there are other financial analysts who think the ridesharing services still face an uphill climb. Wedbush analyst Dan Ives noted that Uber and Lyft need more time to recover after the economy re-opens.

“It’s still a slow thaw, and with multiple macro levers over the course of the year, and likely an even longer return to normal environment, including business travel, there’s still a long road ahead for rideshare,” said Ives.

What is Uber’s quick ratio?

As of March, Uber’s current assets are $11.11 billion. Uber’s liabilities are $6.63 billion. The quick ratio formula is:

11.11/6.63=1.68

So, Uber’s quick ratio is 1.68.

Lyft perseveres despite COVID-19

Even though Lyft stock was adversely affected by the nationwide lockdown, the company still reported good news. Lyft reported Q1 2020 sales of $955.712 million. That figure beat experts’ expectations of $897.860 million.

Lyft stock also jumped after reporting that ridership increased by 26% in May. CEO Logan Green noted that Lyft was able to withstand economic headwinds.

“While the COVID-19 pandemic poses a formidable challenge to our business, we are prepared to weather this crisis. We are responding to the pandemic with an aggressive cost reduction plan that will give us an even leaner expense structure and allow us to emerge stronger,” said Green.

Similar to Uber, Lyft’s chief financial officer Brian Roberts also noted that the corporation was reducing costs.

“In these uncertain times, we are building on that progress by taking decisive action to reduce costs and further improve our operating efficiency. We expect to remove approximately $300 million from our annual expense run-rate by the fourth quarter of 2020 relative to our original expectations for 2020,” said Roberts.

Analysts split on whether Lyft is a buy

Financial analysts are divided on whether Lyft is a buy. Piper Sandler’s Alex Potter downgraded his rating of Lyft. He believes that riders will be hesitant to enter Lyft cars because of COVID-19 fears.

“Sequential gains are encouraging, but since ride-hailing involves sharing indoor air with strangers, we expect riders may remain wary for some time,” said Potter.

While Potter is bearish on Lyft stock, Needham’s Brad Erickson is bullish on Lyft stock. He rates the ridesharing company’s stock as a buy.

“We are unwavering in our view that the secular story of ride-hailing adoption is intact if and as we move through COVID,” noted Erickson.

What is Lyft’s quick ratio?

As of March, Lyft’s current assets totaled $3.144754 billion. Liabilities equaled $2551.14 billion. In the quick ratio formula,

3.144754/2551.14= 1.23

Lyft’s quick ratio of 1.23 is less than Uber’s 1.68. Uber has a greater ability to pay its short-term liabilities than Lyft.

Quick ratio comparison: Tesla vs. GM

Tesla was founded just a few years ago, but is already challenging the established automobile company General Motors (GM). I will examine which corporation has a higher quick ratio.

Tesla makes a profit despite COVID-19 challenges

Like all automobile corporations, Tesla’s( NASDAQ:TSLA) production ground to a halt after coronavirus caused a nationwide shutdown. Despite the shutdown, Tesla turned a profit in a better-than-expected Q1 2020 earnings report with revenue of $5.99 billion. CEO Elon Musk spoke about the results.

“So, Q1 ended up being a strong quarter despite many challenges in the final few weeks. This is the first time we have achieved positive GAAP( generally accepted accounting principles) net income in a seasonally weak first quarter,” said Musk.

Musk also spoke about how Tesla has $8 million available in cash despite a reduction in demand for Tesla during the economic slowdown.

Analysts divided on whether Tesla is a buy

Tesla’s positive Q1 2020 earnings report makes Tesla a buy to Wedbush’s Dan Ives. He wrote in a note to clients that he believes Tesla stock can continue to perform well now that the company’s factories are re-opened.

“Tesla appears to be turning the corner from both a demand and production perspective heading into the month of June,” wrote Ives.

Ives also believes that the international demand for Tesla’s Model 3 will help the company’s stock.

“While second-quarter delivery numbers remain in flux due to a host of logistical issues as well as overall lockdown conditions now starting to ease across the U.S. and Europe, it appears underlying demand for Model 3 in China is strong with a solid May and June likely in the cards and clear momentum heading into the second half,” added Ives.

While Ives is bullish on Tesla stock. Bank of America analysts are bearish on Tesla stock. The analysts believe that even though Tesla is re-opened, production restarts will still be difficult to implement.

Analysts also noted Tesla’s re-opening “will likely prove toughest with production restarts/ramps that continue to be pushed out, which may disproportionately hit (Tesla) by derailing its ongoing capacity/production expansion across its plants (Model Y in Fremont, Model 3 in Shanghai, Giga (Berlin)”.

What is Tesla’s quick ratio?

As of March, Tesla current assets excluding inventory are $14.893 billion. The company’s liabilities equal $ 11.986 billion. The quick ratio formula would be:

10.40/11.986=0.87.

Tesla’s quick ratio is 0.87.

GM touts liquidity despite economic slowdown

GM had a better-than-expected earnings report despite COVID-19 slowing down production. Chief financial officer Dhivya Suryadevara touted the corporation’s liquidity in its latest financial results.

“Our liquidity continues to be very strong at $33.4 billion at the end of first quarter. Even in an extreme scenario with zero production, our current levels of liquidity will take us into Q4 of 2020. In addition, the capital markets continue to be open as a way to access additional layers of liquidity to take us beyond that time frame,” said Suryadevara.

Deutsche Bank bullish on GM stock

Because of GM’s positive earnings report, Deutsche Bank upgraded its rating of GM stock to a buy in May.

“GM’s strong 1Q performance and forward-looking outlook, in our view demonstrate the benefit from its proactive actions to transform the business, right size its costs and boost profitability. They should leave GM best positioned to weather challenging 2Q conditions, and yield considerable improvement in profit and free cash flow in 2H and into 2021.”

GM’s stock rose 6% after the Q1 2020 earnings report. The company had its stock slide 40% throughout the year. However, GM is showing resilience as it re-opens its factories as the economy re-opens.

What is GM’s quick ratio?

As of March, GM’s current assets equaled $86.90 billion. GM’s liabilities totaled $91.29 billion. Therefore, the quick ratio formula is:

86.90/91.29=0.95.

GM’s quick ratio is 0.95.

GM’s 0.95 is greater than Tesla’s 0.87. GM has more liquidity and can more easily pay off short-term debt better than Tesla.

How can traders use quick ratio interpretations to pick stocks?

While a quick ratio of a company is just one way to measure a corporation’s success, it is a vital metric. A quick ratio interpretation can help investors choose the best stocks that can pay off short-term debt. TradingSim charts and blog posts can also help investors find the best stocks with the most liquidity to easily pay off debt and give investors better results.

Everybody wants to be a successful trader. While there are many strategies to become a successful trader, there are 10 pivotal ways that traders can have to build a winning portfolio. This TradingSim article will give traders the top 10 strategies on how to develop a solid trading strategy, highlight 5 specific investing strategies, and will assist investors who want to choose the best stocks or other investment instruments.

Why do investors need a trading strategy?

Investors need a trading strategy to avoid emotional investments. Trading strategies are necessary to avoid irrational actions during extreme swings in the stock market. It’s especially important to have a framework for trading during a bear market. Legendary investor Warren Buffett noted that investors have to remain calm to pick the best trading plan.

“Owners of stocks, however, too often let the capricious and often irrational behavior of their fellow owners cause them to behave irrationally as well, ” said Buffett.

Buffett added that an emotionless trading strategy is crucial.

” You need a stable personality. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd because this is not a business where you take polls. It’s a business where you think,” added Buffett.

Having a trading strategy with predetermined rules that help investors make decisions help investors make the best choices. Here are 10 steps that will help formulate an effective trading plan.

1. Determine a trading goal.

When formulating an investment strategy, an investor should know what they want at the end of investing before they begin. If an investor has a set goal, it will give the investor more discipline to stick to them. For example, an investor may also want to set a short-term goal of buying a certain amount of shares of an in-demand stock, like Amazon(NYSE:AMZN). An investor may also set a long-term goal of increasing their portfolio by 15% over a year. A trading strategy will help an investor focus and reach that goal sooner.

2. Test a trading strategy

Once an investor has a plan, they can test it out. Backtesting a trading strategy could help test out the framework for a testing strategy. Using a simulator like TradingSim can help investors try out trading strategies before risking real capital.

Backtesting a trading strategy by analyzing the Dow Jones

3. Set aside a certain amount of time for a strategy

In addition to setting a realistic goal for trading, an investor must decide how much time they can dedicate to an investment plan. If an investor only has limited time to invest in the day, the quick action of day trading may be the best option. If investors want to take a long-term strategy, they can place trades for a longer period of time in swing trading. Investors can also determine a set time to invest each day to keep track of their investment goals.

The other key thing is making sure you spend the time to learn the basics of how to invest in the stock market with affordable introductory courses at a low price point. There is no point in spending a ton of money on anything related to the market until you feel this is something you are interested in over the long haul.

4. Determine which markets to trade.

Once a trader determines how much time to devote to trading, they should choose which market they will choose for investment. Traders may want to just focus on US stocks on the New York Stock Exchange or NASDAQ. For traders who want to explore other options, they can trade foreign exchange currency (forex) or futures.

5. Assess risk tolerance.

An investor must determine how much money they are willing to risk when placing a trade. Ideally, an investor shouldn’t risk any more than 5% of available capital.

Investors can determine a risk-reward ratio as well. A risk-reward ratio can be 1:3 if an investor has a $300 maximum potentially to lose and $600 maximum potentially to gain in investments.

Brandon Pizzurro, portfolio manager of public markets at GuideStone Capital Management in Dallas, noted that risk assessment is crucial, especially in this volatile stock market.

“Investing, in general, requires an assessment of one’s risk tolerance, and never is that risk tolerance tested more than in the midst of a bear market,” said Pizzurro.

6. Always have a stop-loss.

Traders should only risk what they can afford to lose. Instituting a stop loss will help investors stay withing their investing limits, especially in forex. A stop-order loss is a deal to sell a stock once it reaches a certain price. By setting a stop-loss, investors can limit their exposure to risk.

For example, a trader could be trading the euro and dollar at 1.1233. The trader could promise to sell the EUR/USD when it drops below 1.12. A stop-loss can set a limit on how much an investor loses on a trade.

Famous investor Bruce Kovner, chairman of CAM Capital, noted that stop-loss orders are the best way to minimize risk.

“Whenever I enter a position, I have a predetermined stop [loss]. That is the only way I can sleep. I know where I’m getting out before I get in. The position size on a trade is determined by the stop [loss], and the stop is determined on a technical basis. I always place my stop beyond some technical barrier,” said Kovner.

7. Conduct thorough research.

In addition to having set limits with investing, conducting research is key. Investors can delve into a stock’s earnings report, price-to-earnings ratio, or track an investment on TradingSim’s charts. By conducting thorough research, investors can build a successful trading strategy. The TradingSim chart below shows the way investors can track Apple stock.

8. Have a trading journal

No, the journal isn’t to write about crushes. A daily trading journal can help an investor keep track of how the trades are going and how your plan is doing overall. A trading journal helps an investor keep track of what is working in a trading strategy and what doesn’t work. Trading journals should have these main aspects.

Date and time of trade. Keep track of when trades were made. Trades made in the morning may be more beneficial to investors than trades at different times.
Trace different instruments. An investor may have capital in different instruments, like commodities and stocks. Investors can track the performance of each different instrument to determine how their trading strategy works for each investment.
Entry and exit prices. An investor should keep track of the prices of stocks when they enter and exit trades.
Results of trades. Review the results of the trades. Investors can then go over successes and mistakes.

9. Learn from mistakes.

While checking a trading journal, an investor can notice a pattern in a trading plan-especially, when there are losses. An investor has to learn from mistakes to perfect their trading strategy. Forex trading expert Bill Lipschutz believes that losses are a natural part of trading and that investors can learn from trading losses and errors.

“I don’t think you can consistently be a winning trader if you’re banking on being right more than 50% of the time. You have to figure out how to make money being right only 20 to 30% of the time,” said Lipschutz.

Market analyst Paul Rosenberg noted that traders often make two errors when trading.

“Poor risk management, for example, using too much leverage. Having a bad risk/reward profile on trades is a staple of poor risk management that I come across (as a rule of thumb a trader should not enter into a trade unless analysis suggests they can make at least ~$2 for every $1 risked),” said Rosenberg.

Knowledge of trading information is important. However, Rosenberg also noted that overanalysis can hinder traders as well.

“Over-complication of the analytical process. Many traders utilize too much information to arrive at decisions, which causes contradiction and indecisive behavior,” said Rosenberg.

An investor can learn what worked and what didn’t work from their trading strategies.

10. Keep trading.

Even if a trading strategy didn’t work, they can learn from their mistakes to continue as a trader. Investors can tweak their strategies or try a new one altogether. Traders shouldn’t get discouraged by losses. They should just re-assess their strategy and stay in the investing game. Investors should stay encouraged by remaining confident and treating investing as the serious business that it is.

Different trading strategies can lead to success

There are many different trading strategies that investors can use. Some of the most popular plans will be explored with the steps mentioned in this TradingSim article.

Day trading can be successful for traders who want quick stock action

Day trading is a popular trading strategy for investors want to make a lot of quick trades- and possibly profits- every day. Short-term trading is the essence of day trading.

Owen Murray, director of investments at Horizon Advisors, notes that day trading may pay off most during a bull market because there are greater profits.

“Day trading typically becomes very popular during bull markets, because on balance, stocks are mostly moving higher and it is easier to make profits,” said Murray.

How to have a better day trading strategy

Day trading can work for traders in a bull or bear market if they take the right precautions. There is no one right way to day trade. However, using the above steps can help create a successful trading strategy. As mentioned in an earlier TradingSim article , investors must treat day trading as a business. Day traders can take these steps to be a more successful trader.

Day traders can use TradingSim’s guidance to become a better day trader.

Determine a day trading goal.

Day traders want to make profits s quickly, so they can set a goal of trading 5 stocks or so a day. As a trader’s confidence and track record grow, they can make dozens of trades a day. However, Merlin Rothfeld, an investment strategist, advises against making so many trades in such a hurry.

“When I started day trading back in 1998, I was a total gunslinger, averaging 550 trades per day,” said Rothfeld. “This caused me to be reckless in my trade selection and execution – not to mention that my broker was making a killing off the commissions I was paying on all those trades. “

“For this reason, I recommend that every day trader set a maximum number of trades to take in a day. Think of it like having a six-shooter: You only have six bullets in your gun, so you better make them count,” added Rothfeld.

Have the capital set aside for day trading.

While day traders may crave the excitement of making lots of trades, they must have the money to make the trades. Day trading is usually the most costly investment. The capital required to trade stocks could climb up to $25,000. Trading futures and commodities like oil may only require about $1,000 to invest in the stock market. The forex market may require about $1,000 or even less. There is no set amount for investing, but day traders shouldn’t risk more than 1% of their capital on trades.

Set aside a lot of time for trades.

Day trading happens quickly all day, so day traders have to be ready to trade at a moment’s notice. Traders must treat day trading as a second job and dedicate hours a day to tracking trades.

The best time to trade could possibly be when the market opens from 9:30 AM-11:30 AM EST. The first two hours of trading are often the most active, so day traders have the potential to earn the most money. The best time to trade futures is usually in the morning as well. Forex can be traded 24 hours a day because of the global trading around the clock.

Test day trading strategies often.

If traders want to try out their strategies before investing capital, backtesting day trading could be best. Day trading strategies can be tested on TradingSim before they’re implemented in real life. Simulated trades can help traders analyze how well or badly their trades are doing. Testing out trades can help determine which strategy is best for day trading. For example, if an investor wants to backtest day trading Coca-Cola stock, they can use charts like the TradingSim chart below.

Conduct up-to-the-minute research.

Since day trading is so volatile, it’s important to remain on top of financial news. By following blog posts on sites like TradingSim, day traders can stay informed on the latest financial news to make better-informed trades. Day traders should also have an up-to-date trading journal to keep track of the many trades that made.

Have stop-losses to minimize risk.

Stop-losses are important to stay ahead in trading. Kenny Polcari, senior wealth strategist at SlateStone Wealth, noted that it’s important to change course, change position size, and cut losses when necessary.

“Don’t get married to a position just because you like the name. Don’t be married to it if it’s going in the wrong direction. You’ve got to be able to cut your losses and then look at it again at a different time,” said Polcari.

Dennis Dick, proprietary trader and market structure analyst at Bright Trading, notes that it’s important to minimize risk since day trading is one of the most unpredictable trading strategies.

“The goal is to try to eliminate the overall market risk, which is essential in the current market environment,” he says. “Even if a stock has good relative performance, if the overall market has a significant decline, I am likely to lose money on that trade.”

A stop-loss order on a certain stock price will ensure that investors won’t risk more than necessary while making day trades.

Practice and dedication build better day traders

Research, patience, and limiting losses are key to being a successful day trader. Trader Deyanna Angelo noted that day trading is not an easy way to get rich.

“Day trading is a very difficult performance discipline, much like becoming a professional football player or playing a musical instrument to a virtuoso level. You first need to have a natural talent, followed by years of practice,” said Angelo.

Swing trading strategy an option for investors

In addition to day trading, successful trading plans can be applied to swing trading. Swing trading is a trading strategy in which investors strike during two major swings in the stock market. They enter or exit trades when the market swings high or low. In a bull market, swing traders can go long and trade at highs. In a bear market, swing traders can go short and sell when stock prices plunge.

Swing trading is similar to day trading, because an investor holds a stock for a short period of time. However, while several day trades could be placed every day, swing trades could be placed every few day or weeks. Investor Evan Medieros noted that traders should minimize their risk while swing trading stocks.

“I risk anywhere from 0.50 to 1% per trade. Position sizing and managing individual trades include stop losses, both timed & price,” said Medieros.

Similar to day trading, Medeiros noted that he has a series of stocks ready to trade over a few days.

“At any given time, I have 50 to 100 stocks on my bench that I want to get involved in once they ‘set up’. So it is a combination of waiting for the setups and aligning that with my target portfolio exposure, given the market environment, “said Medieros.

Best time of day to swing trade may not be at opening bell

As opposed to day trading, the best time of day to swing trade may not be when the stock market opens at 9:30 EST. At the opening bell, stocks generally move higher, so that may not be the best time for swing trading. When there is a pullback between 10AM-11AM, that may be the best time for swing trading.

Use swing trading indicators

There are three main swing trading indicators that swing traders can use to monitor stocks.

Moving averages

Moving averages help investors identify or confirm trends. In a simple moving average, all the closing prices are added up for a certain number of days. After the addition, the total is divided by the same number. For example, a 10-day moving average would take the closing price of the last 10 days. It would then be added up and divided by 10 to get the average price.

10 day moving average — 10 -day moving average

2. Relative Strength Index

The relative strength index (RSI), which helps determine if the stock market is overbought or oversold. The RSI is on a chart of 0 to 100. The market is considered overbought if the RSI presents any number over 70. If the price is below 30, the market is considered oversold.

3. Visual analysis indicator.

Visual patterns on charts can help investors easily keep track of what is happening in the stock market.

With indicators and risk management, investors can make the best of swing trading. While day trading isn’t for every trader, with research and persistence, investors can try day trading as a method to potentially increase profits.

Scalping trading strategy another option for investors

In addition to switch trading, scalping trading is another short-term trading strategy that investors can use. It’s similar to day trading, but differs in an important way. Scalping make numerous trades for smaller profits. Scalping traders can profit from small price changes. Instead of holding positions for a few hours or weeks, scalpers may just hold a position for just a few minutes.

Small goals and a lot of time are key to scalp trading

Scalping is about getting smaller profits faster, so incremental goals are pivotal. Traders should start by looking for gains in the range of $0.10-$0.25.

Scalping is such a high-volume trading strategy that quickly changes. So, scalpers need a lot of spare time to monitor the markets. Watching the stock market for hours is a must to catch any slight price changes.

Scalping trading strategy has low risk, but requires high wins

A benefit of scalping is that it is low risk. However, a trader must have a higher number of wins because the profit margin is so minuscule. Traders need a large amount of capital to enact dozens or even hundreds of trades.

Traders should make sure the risk/reward ratio is 1:1. As noted in a previous article about scalp trading, a trader shouldn’t risk more than .1% of their capital on a trade.

If an investor’s trade position is $100 and the stop price is $99.50, the risk and reward must equally be 50 cents. The trader should exit a trade at $100.50 to turn a profit.

Technical analysis can help scalpers

Scalpers can hone their scalping trading skills by using technical skills. Just as moving averages can help with swing trading, they can be useful with scalp trading as well. The simple moving or exponential moving average indicators show the average stock price over a particular time. The exponential moving average may be better for scalpers because it monitors price changes quicker than simple moving averages.

The Stochastic Oscillator Indicator is another way to monitor momentum. Traders use the Stochastic to predict the momentum before a price change. The Stochastic Oscillator and the exponential moving average are just two methods to analyze stocks for scalp trading.

With analysis, a lot of time to invest, and interest in incremental gains, traders can test out the scalping trading strategy.

Position trading strategy is a long-term option for traders

In contrast to scalping, long-term investors that want a longer-term trading strategy can try position trading. Short-term trading can last for minutes or hours. However, position trading can stretch for weeks, months, or even years. Position trading is a long-term stock market trading strategy in which traders want to catch long-term trends in the market.

Position trading strategy may be best for passive traders

Traders that don’t have a lot of time to invest-and more-capital- could try the position trading strategy. For traders that want to more closely emulate long-term investing, position trading could be a better option. Some position traders may just place a few big trades a year, so they can trade part-time if they want. Beginning traders that want to gently wade into trading may find position trading best for them. Position traders hold positions for a longer period of time, so more capital is required to invest.

Bear market may be good time for position trading

Ironically, a bear market may be a better time to try position trading than in bull markets. In a bull market, positions may eventually tumble in a correction. A trader placing positions at the end of a bear market may be in a better position when the stock market eventually recovers. If a position trader is patient and rides out the end of a bear market, they could potentially profit when a bull market comes around again.

Specialized position holding is key

Because a trader is holding a position for a long time, it’s pivotal that position traders have specific holdings. If a position trader focuses on one or two sectors to follow, like tech or healthcare, it will be easier to spot trends.

Position trading uses many research tools

Position trading takes a long-term view, so traders can use two types of analysis. Traders can use fundamental analysis to study earnings reports of stock and overall market trends to determine how to trade.

Position traders can also use technical analysis to monitor their positions. They can use the 200-day exponential moving average to identify long-term trends. It could possibly be a bullish signal when a price of a market rises above the 200-day average. Traders can watch the 200-day exponential moving average to determine where the market is trending.

Traders that have patience and want to minimize risk may find that position trading is the best option for them.

Trend trading may be best for long-term investors

Similar to position trading, trend trading is ideal for traders who want to hold positions for a long time. Trend traders look at a stock’s price trend over a long period of time. A trader then compares the price to broader market trends. An investor then makes a trade based on that knowledge about the market trends.

Legendary trader Paul Tudor Jones noted that the 200-day moving average indicator is important to monitor trends. Trend trading can use the 200-day moving average indicator to watch assets.

“My metric for everything I look at is the 200-day moving average of closing prices. I’ve seen too many things go to zero, stocks, and commodities. The whole trick in investing is: ‘How do I keep from losing everything?’ If you use the 200-day moving average rule, then you get out. You play defense, and you get out, ” said Tudor Jones.

Trend trading requires fewer trades

Similar to position trading, few trades are required to start trend trading. A trend trader could just make about a dozen trades a year to remain active.

Because turtle trading is a slow and steady process, trades can be made at any time. There is no rush at the beginning of the day like day trading. There is also no need to wait for a pullback later in the trading day, such as with swing trading. Whether it’s at opening bell in the US stock market or after-hours with forex, turtle trading has a flexible timetable.

“The trend is your friend” in this trading strategy

Financial adviser Ali Hashemian noted that trend trading may be best for trading commodities like oil or gold. The trends in those commodities may be easier to track than stocks, so trend trading may be best for commodities.

“Trend trading is commonly utilized by commodity traders. Most often this trading style will include price calculations, moving averages, and take-profit or stop-loss provisions. Traders will use price movement and technical tools to determine trading signals,” said Hashemian.

Trend trade signals and indicators help traders make best picks

A number of different trade signals can be used, and traditionally there are set rules and risk controls put into place when using this trading strategy. Other than the moving average, there’s the Moving Average Convergence Divergence (MACD). If the MACD moves above 0, that’s usually a sign to buy. If the MACD moves below 0, that’s usually a bearish sign for trend traders to sell their assets.

The aforementioned relative strength index (RSI) signals a buy trend if it moves above 50. An on-balance volume indicator can be used to measure an asset’s trading volume. Joseph Granville, the developer of the metric, believed that an increased volume in an asset means a bullish or bearish turn.

Risk management key to trend trading

Famed trend trader Paul Tudor Jones also advises having a “5:1 risk /reward. Five to one means I’m risking one dollar to make five. What five to one does is allow you to have a hit ratio of 20%”, said Tudor Jones. Minimizing risk is key to get ahead in trend trading. A maximum 2% stop is also advisable for beginning turtle traders.

Turtle trading is most famous form of trend trading

Turtle trading is the most famous form of trend trading. The popular method emphasizes a purely technical and methodical approach to trades. Financial analyst Zaheer Anwari noted that turtle trading can pay off if traders are patient and emotionally detached while making trades.

“With time and experience, it becomes a detached, robotic and stress-free approach to the markets, as the initial risk is always very low and well managed and only the very best trades are taken,” said Anwari.

Turtle trading could be best for traders who want to bide their time in the markets. The turtle trading strategy could also work traders who want or need set trading rules.

Different trading strategies can help create success

There is no one trading strategy that will create a successful framework for a trading strategy. Just as the stock market is different every day, so is a trader. What may work one day may change the next. However, the 10 steps and specific trading strategies will help traders make better choices.

TradingSim’s charts and articles can help beginning or experienced traders develop the best trading strategies to navigate the volatile stock market. With a methodical framework that makes room for flexibility, traders could find a trading strategy that works best for them.

Zoom Video Communications (NASDAQ: ZM) took off like a rocket since it went public in 2019. The videoconferencing site Zoom has become essential for workers during the coronavirus (COVID-19) crisis. With the rise of videoconferencing to keep up with friends, families, and co-workers, Zoom shares climbed 20% over the past few weeks. Along with Zoom, there are four other strong growth stocks in this article that are still solid investments in the midst of a volatile stock market. During this bear market, these stocks can potentially be a savvy investor’s source for low-risk investments.

Growth stocks are stocks that are growing much faster than other equities on Wall Street. Many of them have higher-than-average valuations. Investors can look closely at these five stocks on Trading Sim that could pump up their portfolios. This article will also tell investors what traits to look for to find stocks that have great growth potential like Zoom. The conclusion of the article will also warn about a stock that doesn’t have the same growth potential as stocks like Zoom and is cratering- retailer J.C. Penney( NYSE:JCP). The article will also note how Trading Sim can help investors find the next growth stock.

How did Zoom get its start?

The latest prominent growth stock, Zoom, got its start in 2011. Eric S. Yuan started the company in his native China. He saw Zoom as a way for companies to communicate with each other. He worked on the idea when he was a corporate vice-president of engineering at Cisco once he immigrated to the U.S. During an interview in 2017, Yuan presciently said that Zoom would help make it easier for workers to telecommute.

“Zoom gives organizations and individuals a faster way to communicate relative to audio-only, chat, and email meetings, and it’s not restricted by geography, so employees have more flexibility to work from home. Because it lets people meet face-to-face, and provides support for screen sharing, it’s truly a collaboration catalyst, and helps build teams across geographies,” said Yuan.

The company grew in a cluttered field of videoconferencing apps like Skype and GoToMeeting. Zoom grew because Yuan would personally call dissatisfied customers. In addition to Zoom’s dedicated customer service, Zoom grew because it offered a free version of the app on smartphones. into a company with a $9 billion valuation. The valuation was 48 times its sales when Zoom went public in April 2019.

How has Zoom stock performed since it went public?

After the debut of Zoom’s IPO (initial public offering), Zoom shared climbed 72% above its listed $36 IPO price. Though the stock experienced volatility in the year after going public, its last earnings report showed strength. Even before the coronavirus global outbreak, Zoom’s Q4 2020 revenue soared year-over-year to $188.3 million. The stock currently sells for 58 times revenue.

Yuan noted that the company performed well because of a “unique combination of high total revenue growth of 78% at a scale of $188 million, GAAP( generally accepted accounting principles) income from operations of $11 million, non-GAAP income from operations of $38 million, and operating cash flow of $37 million.”

Why is Zoom stock “quarantine-friendly?”

Zoom stock jumped 200% since the stock went public. The Renaissance IPO ETF noted that work-from -home apps like Zoom have survived the coronavirus-caused massive sell-off.

“Quarantine-friendly companies like remote work-enablers Slack (NYSE:WORK; +23% in February) and Zoom Video (ZM; +20%) and telemedicine provider Teladoc (TDOC; +23%) have also outperformed the broader market,” noted Renaissance.

Zoom’s popularity is because of its reliability. In contrast to other videoconferencing apps that have glitches and buffering problems, Zoom mostly manages to avoid prolonged outages. So, while there may be awkward moments of kids interrupting meetings, the livestream will always come through very clearly.

Zoom is growth stock because of accessibility

Zoom stock is also surging because of the app’s accessibility in many areas. Apple’s FaceTime is exclusively on iOS and Apple devices. However, Zoom is widely available on Android and any Apple or PC. Zoom also is not just being used by workers, but by schools to help with digital learning. The corporation has eliminated the 40-minute limit on free calls so students and teachers can remain in contact with each other. The company’s CFO, Kelly Steckleberg, noted that reliability and easy access for students makes Zoom an attractive option for customers.

“The usability and the reliability of Zoom is what has led to this incredible adoption, combined with, honestly, the generosity of Eric and his willingness to open it up especially to the schools,” said Steckelberg.

Why is Zoom stock a growth stock?

Zoom stock is also a high-growth stock because of its potential revenue growth. Bernstein’s Zane Chrane and Michelle Issacs note that if Zoom’s free users convert to paid users, there could be an explosion in revenue for the company.

“If we … assume that 75% of the active users added YTD are incremental purely due to CV [coronavirus], the massive spike in usage YTD would suggest that Zoom could get as much as $140M in incremental revenue if customers that convert to a paid plan are retained for at least a year,” said Chrane and Isaacs.

Even after the coronavirus crisis abates, Zoom stock could still a long-term option for investors. More workers are working from home, so Zoom is becoming an option for many investors. This TradingSim chart shows that Zoom stock has steadily risen and should continue to remain a buy for investors.

Why Teledoc stock is a growth stock possibility for investors

In addition to Zoom, another tech stock booming in the wake of coronavirus is Teledoc (NYSE: TDOC). The computer software company’s stock has steadily risen in the past few days. Similar to Zoom, Teledoc has been a necessary health resource for many people who want to check their health through a mobile device. The subscription-based telemedicine company was founded in 2002. The company offers virtual consultations with doctors and the stock has exploded during the recent coronavirus outbreak.

The corporation’s stock grew 30% over the past month and 400% since Teledoc went public in 2015. During the company’s Q4 2019 earning call Teledoc’s CEO, Jason Gorevic, said that Teledoc’s physicians would work with clients to weather the current pandemic. With many people under quarantine, Teledoc has been the perfect way for people to safely interact with doctors to monitor their health.

“Our clinical teams, thousands of physicians around the world, are actively working along with our commercial teams and clients to ensure that members have the most timely and relevant access to the latest information during this unfolding situation, and access to care if and when they need it,” said Gorevic. This Trading Sim chart shows mostly steady growth for Teledoc stock.

Teledoc hopes to increase customers to increase stock growth

Even before the COVID-19 crisis, Teledoc stock looked attractive because of the corporation’s partnerships with (NYSE: CVS) and hundreds of hospital systems. This growth shows that Teledoc will have a wide reach to a larger number of customers. During a recent conference call, Teledoc noted the potential to expand its customer base.

“Our existing health plan clients and self-insured clients associated with these health plans currently purchase our solution for only a small percentage of their beneficiaries in the aggregate, and we estimate this provides us the opportunity to grow our membership base by more than 75 million individuals in the United States by expanding our penetration within our existing clients alone,” noted Teledoc.

Teledoc’s profile rises with coronavirus pandemic

Lew Levy, MD, Teladoc’s chief medical officer, noted that telemedicine companies like Teledoc are vital during this current health crisis.

“We are seeing more patients, and more of those patients are experiencing upper respiratory issues. As we saw during the flu epidemic of 2018, a community’s healthcare system can become overwhelmed and virtual care can help provide needed relief,” said Levy.

During the coronavirus crisis, Teledoc is working closely with the Center for Disease Control to provide information to clients.

Levy noted that Teledoc has a “unique ability to immediately connect with the CDC and other government agencies to add the right screening tools and clinical quality protocols to our system, and most importantly, to keep patients — particularly those most at risk with underlying health conditions — out of care settings where they can face exposure.”

Netflix stock benefits from quarantine life

Teledoc benefitted from patients increasing as a result of coronavirus. Similarly to Teledoc, Netflix (NASDAQ: NFLX) stock has jumped as a result of ” stay at home” orders. The streaming service’s stock surged 8.2% over the past week. Baird Equity Research said Netflix would outperform because of two strengths. Netflix is the go-to home entertainment for quarantined Americans. The corporation is also part of a growing trend of customers abandoning cable.

Netflix has always been able to set trends since launching in 1998. The company evolved from DVD rentals to streaming entertainment in 2007. Since producing original content in 2013, the hundreds of original shows currently offered have helped Netflix 167 million subscribers worldwide. So, watching Love is Blind may actually be a smart move to boost Netflix stock.

Since going public in 2002, Netflix stock has grown 3,000%. Even with competition from Disney + (NYSE:DIS) and Hulu, Netflix subscribers grew in Q4 2019 by 20%. Netflix was a pioneer in streaming entertainment. By being first and have more options for viewers, Netflix remains a strong growth stock for investors.

Analysts see Netflix stock as growth stock

Many analysts are bullish on the stock, like Credit Suisse analyst Douglas Mitchelson. Data from Credit Suisse found that quarantined people in countries hard hit by COVID-19 are becoming devoted subscribers.

“The data in both Hong Kong and Korea present a strong case Netflix is seeing increased demand, as first-time app downloads inflected positively starting in January and continued into March,” said Mitchelson. This Trading Sim chart shows Netflix stock rising on March 11.

Rob Drury, vice-president of client partnerships for media and TV at CSM Sports and Entertainment, also believes that the global quarantine and growing customer base makes Netflix stock a growth stock.

“I‘m bullish on the impact this will have for Netflix. Their business is driven primarily by renewal rates, and on a global scale people are experiencing first-hand the benefit of Netflix’s content library. Social distancing is adding an entirely new dimension to content bingeing.”

Social distancing has been difficult for many during the coronavirus pandemic. The economic downturn has also led people to cut cable packages to only have streaming services for entertainment. However, the social distancing and cord-cutting have been beneficial for Netflix stock.

Lowe’s stock solid because of quarantine orders

Lowe’s (NYSE:LOW) stock is a safe option for beginning traders. The home improvement store has been Like Netflix, the concern about COVID-19 has helped this company’s stock rise. As more people stay at home, many are taking up home improvement projects. That desire to do DIY projects has benefitted Lowe’s shares. Wall Street experts predict that Lowe’s will have a growth stock. High earnings per share usually is a hallmark of a growth stock. Earnings per share rose to $0.94 a share in Q4 2019. Sales also jumped 2.4% to $16.03 billion. Financial analysts predict that Lowe’s earnings per share will skyrocket 15.8% over the next five years.

If investors want short-term returns, Lowe’s stock has a lot to offer investors. Lowe’s shares have grown 20% since its recent earnings report. Lowe’s stock is not only growing, but its dividend is a steady 2% payout to investors. This Trading Sim chart shows the growth of Lowe’s stock during the week of March 12.

In addition to stock growth, Lowe’s store sales performed well over the last month. CEO Marvin Ellison touted the store sales growth in the company’s last earnings report.

“I’m very pleased with the strength and productivity of our brick and mortar stores. There are very few large retailers in America delivering a 2.6% comp growth almost exclusively from the brick and mortar stores. This underscores the sales productivity improvement of our physical stores and our opportunity to unlock additional growth when Lowe’s.com sales accelerate,” said Ellison.

The stores’ sales grew as customers purchased large appliances like refrigerators to store large quantities of food. Lowe’s sales also increased as Ellison started “seeing people start to work down that to-do list and get those things done in their homes.”

Lowe’s CEO buys company shares to show confidence in stock

Ellison also said that he bought Lowe’s shares to show his confidence in the company. “I’m a believer in my company. “I’m here for the long term.”

“We think that we will create a great value and we’ll create a great opportunity for shareholder value over the long term. As CEO, if I don’t have confidence in the company, then I don’t know who will,” said Ellison.

Lowe’s stock could be a growth stock because of the current need the corporation serves during this coronavirus crisis. Big purchases like freezers and even small purchases like toilet paper have made Lowe’s a shopping destination. Lowe’s stock is also a potential growth stock because of its impending expansion into online sales.

Amazon stock a growth stock during coronavirus

Even though Lowe’s is just making a dent in online sales, Amazon( NASDAQ: AMZN) has been an online giant for years. The company has been able to adapt to change since its founding in 1996. Since Jeff Bezos founded the company as an online bookstore, Amazon has grown into an e-commerce and cloud computing behemoth. From Amazon Prime Video to its Amazon Web Services, the corporation is a tech powerhouse.

Just as Lowe’s has seen growth through sales of necessities, Amazon stock has increased through coronavirus checklist item sales. Amazon was already a powerhouse stock because of its dominance in e-commerce. Now with COVID-19 spreading worldwide, shoppers are buying supplies on the site. Popular items like cleaning supplies and even toilet paper are selling out on Amazon.com in the wake of the coronavirus pandemic.

Amazon stock is also increasing because of its grocery delivery service. Amazon owns Whole Foods, which offers free delivery to Amazon Prime subscribers. Many customers are buying groceries from Amazon Fresh, the company’s food delivery service.

Jim Kelleher, an analyst at Argus, noted that Amazon will benefit from the worldwide quarantine.

“As more and more businesses shutter or move to online operations, and more and more consumers shelter in their homes, we expect traffic on the Amazon site to increase. Certain counties with COVID-19 clusters are implementing stay-at-home policies with varying degrees of stringency. Even in communities with low or no cases, consumers are prudently minimizing interactions, including trips to retail stores,” said Kelleher.

Amazon adjusts to help workers amid COVID-19 pandemic

Amazon’s business has grown so much that it is hiring thousands of temporary workers to keep up with demand. The corporation will hire part-time and full-time warehouse workers to fulfill the high demand for shoppers’ needs.

“Because of high demand, Amazon is hiring 100,000 new workers. In addition to the 100,000 new roles we’re creating, we want to recognize our employees who are playing an essential role for people at a time when many of the services that might normally be there to support them are closed,” noted Amazon.

Bezos noted that Amazon is getting its warehouses ready to combat coronavirus.

“We’ve changed our logistics, transportation, supply chain, purchasing, and third party seller processes to prioritize stocking and delivering essential items like household staples, sanitizers, baby formula, and medical supplies. We’re providing a vital service to people everywhere, especially to those, like the elderly, who are most vulnerable. People are depending on us, ” noted Bezos.

Amazon stock still strong despite Wall Street volatility

Amazon stock recently dropped 11%, which is disappointing. However, it’s less than the overall 28% decline in the S &P. The Trading Sim chart below shows the volatility of Amazon stock.

Amazon is also a growth stock because of its dominance in varied industries. The world’s largest retailer controls most of e-commerce. The corporation is also making inroads into cloud computing with Amazon Web Services. More workers are telecommuting, so Amazon Web Services (AWS) benefits. Work-from-home apps like Zoom depend on AWS cloud computing to run, so Amazon is well-positioned as a growth stock.

Analysts say Amazon is safe haven stock

Economic analyst Jim Cramer also believes that Amazon’s stock could rise over 30% to the $3,000 range in this current climate because “Amazon Web Services must be just crushing it.”

Stock analyst Jason Helfstein noted that Amazon is a stock that will outperform other equities. He noted that Amazon’s grocery and e-commerce delivery sector will help quarantined customers.

“COVID-19 is driving widespread demand for essentials, combined with increased e-commerce usage from ‘social distancing’ and ‘shelter-in-place’ programs. While some items are taking longer to be delivered, and grocery delivery capacity is strained, we think Amazon is seeing record consumer demand, with share gains likely to remain post virus,” noted Helfstein.

Amazon is a growth stock because of the company’s versatility. Amazon is able to adapt to any online shopper’s needs and to provide cloud computing to stay-at-home workers.

How to spot growth stocks like Zoom

Growth stocks aren’t just trendy pump-and-dump stocks that are here today and gone tomorrow. Many growth stocks that trade as much as 10 times their IPO price can follow current trends, like Zoom. However, Zoom stock is likely to be a growth stock even after the stay-at-home orders come to a close. Zoom is part of a technology that is a staple in work life, so that corporation’s stock is likely to increase. Growth stocks often start as trends, but grow into blue-chip stocks to add to portfolios.

Growth stocks fulfill new needs as game changers

Stocks with high growth potential can outperform more established stocks by fulfilling needs or creating innovative products. Corporations like Teledoc are meeting a need for telemedicine in this time of people being socially distant from each other. Just as Amazon created a new world of e-commerce, many growth stocks evolve from unfamiliar new technology to a pivotal need for consumers. Even established brands like Lowe’s can have shares become growth stocks by rising during seasonal events.

While many investors may see tech stocks as the main growth stocks, online retail can see growth as well. With many people abandoning physical stores, many shoppers are turning to tailored subscription services like Stitch Fix (NASDAQ:SFIX). Any company in an industry that has any innovation or generates interests from consumers is sure to earn a look from investors.

Growth stocks have high earnings- and higher P/E’s

In addition to filling needs for consumers, companies with growth stocks have good earnings reports to please investors. Many growth stocks have high price-to-earnings ratios above 16. Netflix’s price-to- earnings(P/E) ratio is well above that. The streaming service’s stock is valued at 87 times its past year earnings. Amazon’s Q4 2019 sales surged 21% year-over-year to $87,4 billion. On the strength of diversified services the retailer offers customers, Amazon stock is the epitome of a growth stock with its explosive expansion over the past 20 years. Growth stocks usually have two or more consecutive positive earnings reports that show that a corporation has the potential for expansion.

If investors can’t afford Amazon stock, they still shouldn’t invest in risky cheap stocks like penny stocks unless they can withstand the volatility. Investors shouldn’t see penny stocks as growth stocks unless they want to start with low-cost stocks to add to their portfolios.

Many growth stocks have positive cash flow

Growth stocks like Zoom also have a lot of available cash on hand. Zoom has $855 million in cash and investments in reserve. Many growth stocks may have debt, but have a large cash reserve. In its Q4 2019 earnings report, Zoom’s operating income increased 292% from Q4 2018 to $38.4 million. Many growth stocks have to have available cash to weather any storms in the volatile stock market.

Even though Netflix is in millions of dollars in debt to pay for original content, the corporation still has billions on hand. As of Q4 2019, Netflix had $5 billion in available cash. That’s a 32% year-over-year increase.

While growth stocks usually don’t pay a dividend to investors to increase growth, some do both. Lowe’s pays dividends to investors unlike many other growth stocks. However, like many other growth stocks, Lowe’s participates in stock buybacks to reinvest in their companies.

Tom Plumb, money manager at Wisconsin Capital Management, says that tech companies with a lot of cash on hand will have profitable stocks.

“The companies taking in a lot of cash because of their disruptive business models and technologies and their focus on how money is spent and where it is spent, are showing no signs of abating,” he said.

Growth stocks start in U.S., but expand globally

While many growth stocks started in California’s Silicon Valley, but expand around the world. Netflix has 167 million subscribers, but only about 60 million of them are in the U.S. Out of the hundreds of shows offered, many are from India and Nigeria. Those two countries have billions of potential new customers. Netflix is expanding its global outreach to increase the value of its stock.

Amazon is moving to expansion in Brazil and Canada to increase profits. Many growth stocks expand globally after first starting in the U.S. to reach new consumers. By reaching out to international customers, growth stocks have increased potential.

Even before the coronavirus pandemic, Teledoc purchased a French telehealth company to help reach more patients. Now the global expansion is helping Teledoc stock soar. Carlos Nueno, president of Teledoc Health International, touted the acquisition of MedicinDirect.

“With a continued focus on our global expansion, we will now become the market leader in France with the ability to have an immediate impact on healthcare delivery in the country. On the successful foundation built by MédecinDirect, we will bring our full suite of virtual care services to multinational clients who have been eager to expand,” said Nueno.

Growth stocks test an investor’s patience

Growth stocks tend to be focused on the future potential of stocks. While value stocks can capture a company’s current value, investors that focus on growth stocks tend to focus on potential growth. While value stocks are profitable today, many investors think growth stocks will continue to be profitable in the future.

As opposed to value stocks that are undervalued, growth stocks can be overvalued. Investors will likely have to wait out the volatility of growth stocks, some of which are often new to the Dow Jones.

If investors need the money in the stock market within five years, then growth stocks are not for them. Growth stocks tend to require more patience, so investors need to let the money from growth stocks stay in their portfolio in the long run.

Exercise caution when investing in growth stocks

While growth stocks may want investors to rush in, they should be cautious. They shouldn’t invest only in growth stocks. By diversifying, investors don’t have to depend on growth stocks to increase an investor’s profits. A mixture of growth and value stocks can make a more well-rounded portfolio.

Investors also shouldn’t pour too much money into growth stocks because of their volatility. Investors should start small and only invest up t0 3% of their portfolios on growth stocks. Economic expert Tom Engle noted, “If this company is the next great growth stock, then a little is all I need. If it’s not, then a little is all I want.”

While investors may want to go full- speed ahead on a growth stock, it’s best to slowly wade into investing in the stock. If there is volatility in the stock’s industry or on Wall Street, investors can withstand it with their portfolios intact

Why J.C. Penney is the opposite of a growth stock- it stayed behind trends

While Zoom is a cutting-edge stock with huge growth potential, J.C. Penney is on the exact opposite end of the spectrum. Zoom is a relative newcomer to Wall Street, while J.C. Penney has been offering stock for almost a hundred years. The retailer has been struggling for years because of its inability to adapt to change.

The store took too long to offer e-commerce to consumers. As a result, other brick-and-mortar competitors like Target ( NYSE: TGT) scooped up shoppers looking for sales online. Growth stocks often are looking for what’s new, now, next- but J.C. Penney was still stuck in the past. Instead of investing in online sales, J.C. Penney spent millions on stores in malls. But who shops in malls anymore? Everyone gets their favorite pants (or dress) from online retailers like Amazon now. J.C Penney is the exact opposite of a growth stock because the company didn’t have any innovation in its sales strategy or business model. Amazon evolved to cater to shoppers’ needs, unlike the brick-and-mortar retailer.

Companies with growth stocks listen to consumers- J.C. Penney didn’t

Unlike tech stocks that conduct focus groups that listen to consumers, J.C. Penney made many changes without consulting consumers. By abandoning loyal bargain shoppers and not offering coupons anymore, J.C. Penney lost a lot of customers. Zoom often listens to its customers and asks customers for feedback.

As Zoom noted when it reached 10 million participants in 2014, customer service is key to create a growth stock.

“We have a relentless focus on making the best product with the best user experience. This is ultimately what every customer wants. Toward this end, we spend much of our time listening to customers and fine-tuning our software to fit their needs,” said Zoom.

Companies with growth stocks often reach out to customers and stay loyal to their main customer base. J.C. Penney didn’t listen to its customers- and the stock suffered as a result.

Growth stocks have a clear niche unlike J.C.Penney

Growth stocks like Amazon have a clear identity of being the world’s online retailer. With competition from Amazon, J.C .Penney lost its niche as a retailer.

Neil Saunders, an analyst at GlobalData Retail said that the rise of Amazon led J.C. Penney to have a “lack of understanding about what it is, what it stands for, and who it wants to serve”.

Bob Phibbs from the Retail Doctor, also said J.C. Penney lost its identity by neglecting its core shoppers- moms ( or dads) on a budget.

“These companies are so busy trying to figure out who their shoppers are — Is it moms? Is it millennials? — that they’ve lost their most loyal shoppers. Plus the customer experience is forgettable. Nobody is going into a J.C. Penney and saying, ‘You’ve got to see this place. It’s great.’ ”

This Trading Sim chart shows how far J.C. Penney stock has fallen since its last earnings report.

While bargain-hunting shoppers knew to turn to Amazon or Target, J.C.Penney was forgotten and its stock had plummeted to only about $1 a share. Companies with growth stocks often fill a specific niche and know how to stand out among competitors. J.C. Penney doesn’t have that advantage. J.C Penney’s stock is down so low, it might be delisted from the New York Stock Exchange. Not having a clear identity confuses consumers and investors.

J.C. Penney has no cash available to grow stock

As J.C. Penney tried to get customers back, it burned through a lot of cash- a warning sign that a stock is bound to fail. Many growth stocks have a lot of cash on hand to reinvest back into the corporations. However, stocks that are tanking often are in too much debt with no chance at profitability. J.C. Penney is about $4 billion in debt and has had to close hundreds of stores nationwide. J.C. Penney only has $386 million of available cash. In contrast, growth stocks have a lot of cash on hand to weather Wall Street volatility.

Growth stocks like Netflix has debt, but also has a positive net income of $1.9 billion in 2019. While there is no one magic way to predict a growth stock, the contrast between J.C. Penney shares and other stocks show a clear contrast. Investments in innovation, growth in profits, and of course, a rising stock.

J.C Penney is a cautionary tale about stocks and corporations. Companies have to innovate or serve a niche need in order to increase their influence with investors. Corporations like Zoom are shaping the present and are building a strong future. On the other hand, dinosaur retailers like J.C. Penney are falling because it fell behind the times and couldn’t turn a profit.

Research is key to picking growth stocks

If investors want to learn more about how to pick the best growth stocks, thorough research is best. Investors can investigate earnings reports, stock price movements, and more through Trading Sim. With Trading Sim’s expert analysis and platforms to analyze stocks, investors can make wiser stock picks. Investors may even be able to spot the next growth stock with Trading Sim’s guidance and analysis.

Zoom and other growth stocks show that by being innovative leaders or filling niche needs, investors can see an increase in their portfolios.

Tracking growth stocks can be complicated, but studying Trading Sim’s charts can help investors keep track of which stocks are rising like Zoom and which ones are plummeting like J.C. Penney. By simulating trades first, investors can test out Trading Sim’s theories about what creates a growth stock. Trading Sim’s trading platforms can help investors possibly find the next potential growth stock.

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