Finding potential stocks is nothing more than finding a company with good long-term profitability. There are many indicators of the framework method of analysis, but its essence is actually a very simple subclass. To sum up, it's called core three plus one. The third refers to three quantitative indicators, and the first refers to a non-quantitative qualitative indicator. These four types of indicators are to be considered together. The first indicator is the profitability of the company, and the simplest indicators of profitability such as: gross margin, net profit margin, operating margin and so on. If you pick one, in fact, the most you can look at is the net profit margin, that is, the net profit of the enterprise is used to compare its total revenue. Different industries because of their different operating models, so the difference in net profit margin will be very large, when looking at this figure, you need to compare it with the industry average or the same type of companies to be valuable.

For example, the approximate net profit margin of all A-share and U.S. stock companies is between 5% and 10%, but for industries such as financial chips, software, tobacco, pharmaceuticals, etc., the net profit margin can reach ten or even more than 20%. One thing to note is that many high-speed growth companies, such as many Internet companies, because of rapid expansion, sometimes throw money into subsidies or research and development to expand users, in this case their net profit is likely to be negative. The second indicator is called the current ratio algorithm, by intuitively dividing current assets by current liabilities, the larger it is, the more assets it has, indicating that its liquidity is more sufficient. If the financial health is less than one, it means that the company will be insolvent within a year, so it is necessary to choose a time greater than one, generally speaking, it is recommended to be greater than 1.5. The third indicator is the PE value, which is the price-to-earnings ratio of the stock price divided by the net profit. The lower the PE value, the cheaper the stock price. Then non-quantitative indicators need to be considered.

Non-quantitative indicators measure a company's industry threshold, core competitiveness and comparative advantage. It means that if a business model is verified to be profitable, then another company can easily copy the company's business model, so it is easy to surpass this company, then how this company grasps the dominant position, is to rely on its own core advantages. There are several types of common moats that are critical to the company's long-term profitability, first, the product itself gives additional unique value to the brand; The second is the network effect, when a product reaches a certain size, it can spontaneously get better. This creates an extremely strong moat. The most common of these are Internet or platform type companies. So pick an industry that you are familiar with, and you can understand how this company operates and how to make money. Otherwise, I don't know what the core competitiveness of this company is.

Conclusion：After selecting proper industries and companies, use the above methods to find profitable stocks to a large extent.

（Writer：Dirick）