This is very important and if you are able to identify these companies that are not going to do well or that are going to do badly in their businesses, you can prevent yourself from a lot of future heart-aches and losses.
Being able to identify these companies that are going to do poorly over the long term, means you have the ability to also:
1. identify those companies with good long term prospects, which you may choose to dwell in deeper into to prospect for your long term portfolio of stocks.
2. identify those companies that are fundamentally poor which are presently exhibiting temporarily a period of exceptionally good results, so that you may avoid them.
These assessments are based mainly on the businesses of the companies. Do not look at the stock prices for guidance, especially in the initial stages of your analysis of the companies prospects.
It is better to assess the quality of the business and the quality and integrity of the management first.
When you like what you analyse, then do a valuation of its intrinsic value.
Then determine at what price you will be willing to buy at with a margin of safety and a promise of satisfactory return.
Then look at the market price. Looking at the market price to get guidance may bias you in your intrinsic value calculation.