Stock Purchase

Today the markets were up and the Nasdaq in particular. The Investor's Business Daily changed its market direction to a confirmed uptrend clearing the way for a stock purchase. Since thus far, I haven't purchased any stocks and thought we would do that and start learning. Rather than use my own money, I am using the virtual trading option in my online brokerage account at Optionsxpress so this wasn't a direct stock purchase. Since it was after hours, it won't be placed until the morning and at that time it will go through.

I purchased is High-Tech Pharmacal (HTIK). According to it's website, Hi-Tech is a specialty pharmaceuticals manufacturer and marketer of generic prescription and branded OTC products. So, we can use it as an example, I purchased on a whim only because it was up huge in volume.

You can't tell on the chart, but the stock shot up today to 21.42 on really heavy volume. This is a sign of heavy buying. I did check the stock checkup on IBD which was a 98. Other than that, I did not other checking.

View the full HITK chart at Wikinvest

This is not the right way to learn how to purchase stock. But I am doing it for a few reasons. First, so we can analyze the stock market investing decisions here and secondly to show exactly what I shouldn't do in making my stock purchases. Since this is a "paper trade", I thought it would make a good case study to get us started.

I did however, do the first thing right and that was didn't purchase stock online until the market was in a confirmed uptrend. I did not go the additional step of confirming sales and earnings. So, let's start by taking a look at that now.

Our first two rules are to make the best stock purchase is to see if earnings per share are over 25% and sales are over 25% and both accelerating.

I found this blurb on Yahoo! finance today.

"Hi-Tech Pharmacal released first-quarter results, posting record earnings of 73 cents per diluted share, up from 13 cents per share for the same period last year. Net sales jumped 175% to $43.5 million from $15.8 million a year ago. Shares surged 24.1% gaining $4.16 to close at a new 52-week high of $21.42."

But that didn't really give me the full picture in an easy to see concise format. So, what I did was sign up for a 14 day free trial to the Daily Graphs Service.

The earning per share and sales figures were as follows:

EPS

• Jul 08 +152%
• Oct 08 +213%
• Jan 09 +229%
• Apr 09 +999%
• Jul 09 +462% (Increase over the +152% from the quarter prior

Sales

• Jul 08 +56%
• Oct 08 +58%
• Jan 09 +95%
• Apr 09 +83%
• Jul 09 +175%

From the earnings and sales figures, I appear to be in pretty good shape. They're both over my 25% threshold and are accelerating. The chart hadn't been updated yet (as far as eps and sales), but I think September was good as well since those figures were released today and the stock went way up. As far as the exact buy point, we haven't gotten that far yet, so I am not sure that I bought it correctly. Plus there are some other things we need to do to screen our stock purchase properly.

Update: Oh, and I almost forgot to add that I need to establish my sale price which is 7% below what I purchase it at. I will update that tomorrow. I've also put a list in the sidebar of the trades we will making.