It’s all well and good to decide to buy ASX shares. But so often, investors think they know a company and its associated risks well, only to be caught short later on. Of course, we can’t account for all possible outcomes – you can’t blame anyone investing in Qantas Airways Limited (ASX: QAN) in January 2020 for not seeing the full impacts of the coronavirus pandemic, for instance. But we can take steps to mitigate the possible risks of investing in a business by putting the company under the microscope.

So here are 3 ‘checks’ I like to go through in a business before I decide if an investment is worthwhile and risk-averse enough.

1) Debt

One thing you can’t take with a pinch of salt when investing is a company’s debt levels. Debt is a major catalyst for companies going into bankruptcy, so it pays to consider how much debt a company has before buying its ASX share. Now, some businesses need debt in order to function in its chosen market. It would be almost impossible for a mining company or a real estate investment trust (REIT) to operate without debt, for instance.

But if a company has a mountain of debt that it doesn’t really need, it’s a massive red flag in my books. So when you’re assessing your next potential investment, have a look to see how much debt its carrying and think about how it might manage to service this debt if there was a major economic crisis. A good place to start is the debt-to-equity ratio (D/E) where more debt than equity is a bad thing.

2) How does it sit with its competitors

Ideally, I like to buy shares of a business that dominates its field. The market leader will usually have several advantages going for it, such as brand loyalty and pricing power that stems from this loyalty. In contrast, a lesser competitor will often be throwing money at discounting its products to try and compete, which ends up weakening the business’s long-term strength. I usually try and buy the ASX share with the biggest advantage in an industry. There’s nothing wrong with backing a winner in investing.

3) Are its shares cheap?

This one seems obvious, but too often investors will want to own a company so much that they will pay a price that doesn’t make sense from an investing perspective. Warren Buffett’s right-hand man Charlie Munger once said, “no company, no matter how wonderful, is worth an infinite price”. Wise words from a wise man.

Buying ASX shares in a great company doesn’t equate to a good investment on its own. You also have to make sure there’s a reasonable chance your investment will give you a decent return over the long run, and buying something that’s overvalued greatly reduced the chances of this. So always be careful about how much growth you’re paying for in a share price. If you’re paying a price that is assuming 20 years of high-octane growth, the chances of something going wrong are high.

More reading

• Why MOAT is my favourite ASX ETF
• ASX 200 falls 2%, ASX travel shares drop heavily
• Top brokers name 3 ASX 200 shares to buy next week
• Is the Qantas share price a buy today?
• The smartest ASX shares to invest $10,000 in right now

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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In early afternoon trade the S&P/ASX 200 Index (ASX: XJO) is on course to record a very strong gain. At the time of writing the benchmark index is up 3.3% to 5,908.2 points.

Four shares that are climbing more than most today are listed below. Here’s why they are charging higher:

The Afterpay Ltd (ASX: APT) share price is up almost 9% to $55.88. This is despite there being no news out of the payments company today. At one stage the Afterpay share price hit a new record high of $55.93. And as I mentioned here earlier, one leading broker still believes its shares can go higher from here.

The Super Retail Group Ltd (ASX: SUL) share price has returned from its trading halt and jumped 8.5% higher to $8.48. This morning Super Retail raised $158 million through an institutional entitlement offer at an 8% discount of $7.19 per share. Management believes this equity raising will allow the company to continue to execute its strategy and pursue strategic growth initiatives. Super Retail also released a trading update which revealed that like for like sales rebounded strongly in May.

The Uniti Group Ltd (ASX: UWL) share price is back from its trading halt and up 7.5% to $1.66. This morning the growing telecommunications completed an institutional entitlement offer and raised approximately $152 million at $1.40 per share. These funds will be used to part-fund the acquisition of its larger rival Opticomm Ltd (ASX: OPC).

The Viva Energy Group Ltd (ASX: VEA) share price has jumped 15% higher to $1.75. This morning the fuel retailer released a trading update which included its guidance for the first half. Viva Energy expects its underlying net profit after tax (on a replacement cost basis) to be in the broad range of $20 million to $50 million. This appears to have been better than the market was expecting given the tough trading conditions it is facing.

More reading

• ASX 200 jumps 3%: CBA rebounds, Afterpay hits a new record high
• Afterpay and Zip shares are rocketing higher today: Can they go even higher?
• Is the Altium share price the steal of the century?
• ASX 200 falls 2%, ASX travel shares drop heavily
• The Afterpay share price is up 580% from its March low

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Super Retail Group Limited. The Motley Fool Australia owns shares of AFTERPAY T FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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At lunch on Tuesday the S&P/ASX 200 Index (ASX: XJO) has returned to form and is racing notably higher. The benchmark index is up 3.05% to 5,893.9 points at the time of writing.

Here’s what is happening on the market today:

Bank shares rebound.

The big four banks have been playing a key role in driving the ASX 200 higher on Tuesday. All four banks look set to end their losing streaks and are pushing materially higher at lunch. The best performer in the group is the Commonwealth Bank of Australia (ASX: CBA) share price with a gain of over 3.3%.

Super Retail returns.

The Super Retail Group Ltd (ASX: SUL) share price is back from its trading halt and is racing higher. This morning the retailer revealed that it has raised $158 million through an institutional entitlement offer at an 8% discount of $7.19 per share. These funds will be used to execute its strategy and pursue strategic growth initiatives. Super Retail also released a trading update which revealed that like for like sales rebounded strongly in May.

Afterpay hits a record high.

The unstoppable Afterpay Ltd (ASX: APT) share price is continuing its remarkable run on Tuesday. At one stage today the payments company’s shares hit a record high of $55.79. Fellow buy now pay later provider, Zip Co Ltd (ASX: Z1P), which just missed out on ASX 200 inclusion this quarter, is also up significantly today. Investors appear increasingly bullish on the sector and have been piling in today.

Best and worst ASX 200 shares.

Surprisingly, the Afterpay share price isn’t the best performer on the ASX 200 today. That honour goes to the Viva Energy Group Ltd (ASX: VEA) share price with its 14% gain. This follows the release of a trading update by the fuel retailer this morning. The worst performer on the index (and the only ASX 200 share in the red today) is the Mineral Resources Limited (ASX: MIN) share price with a 1% decline. This is despite there being no news out of the miner and mining services company.

More reading

• Why Afterpay, Super Retail, Uniti, & Viva Energy are charging higher
• Afterpay and Zip shares are rocketing higher today: Can they go even higher?
• Investing $1,000 into these ASX 200 shares could be a smart move
• Coles shares and 2 other ASX 200 companies to buy in the current market
• The Santos share price is down 36%! This is what I’d do today

James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of ZIPCOLTD FPO. The Motley Fool Australia owns shares of and has recommended Super Retail Group Limited. The Motley Fool Australia owns shares of AFTERPAY T FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post ASX 200 jumps 3%: CBA rebounds, Afterpay hits a new record high appeared first on Motley Fool Australia.

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