Question

What should you look for when buying stock of a company you know?
If you like their products
If your family knows someone who works there
If their stores always seem busy
If your friends all own that stock

Answer 1

Short answer: personal familiarity (liking the product) and busy stores can be useful starting signals, but none of the four items by themselves are sufficient. Family or friends owning/working there are poor reasons to buy. Always check hard financial and competitive facts before investing.

Quick take on the four cues you listed
- If you like their products: Useful as a starting point — it can reveal true customer insight — but confirm with financials and market share. Popular products don’t automatically mean the business is profitable or well-run.
- If your family knows someone who works there: Not a reason to buy. It can create bias and may expose you to insider-information issues if you act on material nonpublic info.
- If their stores always seem busy: A positive anecdote about demand, but could be local/seasonal or not translate to profits. Look for same-store sales, foot-traffic metrics, conversion, and revenue growth data.
- If your friends all own that stock: Herd behavior. Don’t buy just because others do. Friends may be uninformed or following social trends.

What you should actually look for (checklist)
- Business fundamentals
- Revenue and revenue growth trends
- Earnings (EPS) and profitability (gross margin, operating margin, net margin)
- Free cash flow and cash flow trends
- Balance sheet strength (cash, debt levels, current ratio)
- Valuation
- P/E, P/S, EV/EBITDA, price relative to historical and peer valuations
- Is the price justified by growth expectations?
- Competitive position
- Market share, brand strength, pricing power, network effects, patents, switching costs (a “moat”)
- Growth prospects and risks
- Total addressable market, management growth strategy, new products, industry trends
- Regulatory, technological, or competitive threats
- Management & governance
- Track record of the CEO/CFO, insider ownership, alignment of incentives, accounting quality
- Operational metrics (industry-specific)
- Retail: same-store sales, inventory turns, e-commerce mix, store economics
- SaaS: ARR, churn, customer acquisition cost (CAC), lifetime value (LTV)
- Financial health indicators
- Debt/EBITDA, interest coverage, liquidity
- Catalysts and timing
- Upcoming product launches, margin expansion, cost cuts, macro environment
- Liquidity and investment fit
- Stock liquidity, volatility, how it fits your time horizon and risk tolerance
- Diversification & position sizing
- Don’t overconcentrate; size the position based on risk tolerance

Where to get this info
- Company filings (10-K, 10-Q), earnings calls/transcripts
- Financial sites (Morningstar, Yahoo Finance, Seeking Alpha) and analyst reports
- Industry reports, competitor filings, foot-traffic/consumer data (for retail)

If you want, tell me the company and your investment horizon and I can walk through the key metrics and whether the current valuation looks reasonable.