Finally, the company should own a real business. The business should have strong operating earnings with matching cash flow. Matching cash flows ensures the accounting earnings are real and not merely the figment of a clever embezzler’s mind. We look for signs of earnings manipulation. Companies that own science experiments or toys in search of a business model are for speculators. But weak current profits in a stock with a good past record offers a good chance for mean reversion in those profits.
