The same test can be used to determine if an existing stock in a portfolio should be considered for an additional buy on the basis of value. The NAIC tool to use for this is called PERT or Portfolio Management Review Technique. Quality of a security is too often overlooked by investors. NAIC people, who have become skilled in the use of the Stock Selection Guide, soon learn that good quality stocks frequently possess characteristics that are lacking in lesser quality stocks. The graphical portrayal of growth of sales, pre-tax profits, earnings per share, and perhaps dividends and book value provides insight into the characteristics of the company.
Steady growth tends to be associated with good quality.
There are exceptions, but lack of a growth trend may suggest uncertain quality. Quality can change. Assumption of a big debt load resulting in a highly leveraged balance sheet and sharply reduced interest coverage will reduce quality. Part of portfolio management is being aware of such shifts. Diversification is fundamental to reducing risk.