Looking at a company’s chart, you can see the likely true value in the year leading up to the recession. If the stock still hasn’t returned to that price, it could just be a matter of time. Take General Electric Company (NYSE:GE) as an example. The company’s stock was in the low $40-range before the recession and then fell to under $10. Shares currently sit in the low to mid $20s. That represents a lot of potential upswing, but in taking a look at the second part of the triple test (profit margin), the company is bringing in roughly 10% consistently, which is significantly less than Mosaic.
So if Mosaic Co (NYSE:MOS) passes the “chart” test, then it looks like we have a winner. Prior to the recession, Mosaic was valued at nearly $150 per share before sinking to around $40. The stock is currently priced around $60, making this the champion of the triple test.
While Mosaic appears to have it all. The triple test is only designed to narrow down stock picks. Many other factors need to be taken into consideration before you can make an informed decision. For example, year-over-year revenue growth, money dedicated to research and development, and cash on hand all need to be examined before purchasing a stock.
Phillip Woolgar has no position in any stocks mentioned. The Motley Fool owns shares of General Electric Company (NYSE:GE).