There is a reason why debt matters. There is a reason why you have to dig in and study balance sheets instead of making investment decisions based on what you see pop up in a stock screener. For instance, imagine if you looked up Weight Watchers. You would see a stock generating $1.26 per share in profits and trading at a valuation of 5x earnings. That would look like a really good deal. You can reasonably think, “Hey, America has an obesity problem that is only going to get worse, and people are going to want to use services like Weight Watchers to get their BMI under control.”
This would likely lead to disaster because Weight Watchers has completely reckless management that tackled on an ungodly amount of debt during the early 2000s to repurchase stock and temporarily please Wall Street by beating expectations without giving a hoot about the … Read the rest of this article!