If you want clues to a stock's decline, you can basically take all the financial
indicators that drive a stock up - such as earnings growth, sales growth and profit
margins - and turn them upside down. These are your red flags:
Warning sign - a sharp slowdown in earnings growth in back-to-back quarters.
Warning sign - a sharp slowdown in earnings growth in back-to-back quarters. For example, if a company's earnings growth has been in the 100% range for several quarters, it's bad news when that slows down to 20% or 30%. Dalal Street has little patience and will quickly turn its attention to other, faster-growing companies. You should also pay attention to companies whose earnings or sales growth break a habitual pattern. For example, if a company had earnings growth over several quarters between 25% and 35% and then reports three quarters of steady deceleration, this could be a red flag. Such subtle slowdowns in earnings or sales can sometimes lead to the company eventually missing earnings forecasts.
Warning sign - significant drops in other main fundamentals
Warning sign - significant drops in other main fundamentals — sales growth, profit margins and return on equity — should serve as warning signs, especially if the stock starts having trouble making gains. Check the Sales + Profit Margins + ROE Rating for any significant drops in this gauge.