These filters make it easier to identify lucrative investment opportunities.
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Investors should be well aware of the fact that the stock market is probably the best means of building huge wealth. It doesn’t happen overnight and requires patience and discipline. But the rewards are worth it.
Over the past 10 years, the S&P 500 index has generated a total return of 283% (as of March 19). There are many companies like Amazon. (NASDAQ:AMZN) This is a great example of even better performance. Therefore, you may be interested in learning how to filter the sea of potential opportunities to create a much smaller list that requires further research.
Here are the three most important questions investors should ask before buying a stock.
Do you understand how this business makes money?
Perhaps nothing is more important in investing than understanding how companies actually make money. Take Amazon, for example. It certainly generates a lot of revenue from its retail business. In Q4 2025, combined online and physical store revenue reached $89 billion.
Digital advertising is an up-and-coming sector, with the company reporting impressive fourth-quarter revenue growth of $21 million, up 22% year-over-year.
There’s Amazon Web Services. This is the company’s primary cloud computing platform and posted an impressive operating margin of 35% in 2025.
Amazon also makes money from its popular Prime membership and other services. Subscription revenue totaled $13 billion in the fourth quarter.
Do you have an economic moat?
Amazon’s incredible long-term success can be attributed in part to its economic moat. An economic moat consists of a single durable competitive advantage, or combination of strengths, that allows a company to outperform its competitors and prevent them from entering new industries.
Amazon is an elite company because its online marketplace benefits from network effects. The company’s cloud platform benefits from switching costs. Both of these segments also have cost advantages as their scale supports efficiency and profit generation. When it comes to intangible assets, Amazon’s brand name and ability to collect and leverage large amounts of data cannot be ignored.
Many stocks that perform well have a moat.
Is the stock’s valuation attractive?
Another important variable to consider before considering buying a stock is valuation. This is a strategy championed by legendary investor Warren Buffett and one that has led Berkshire Hathaway to great success.
Investors want to avoid overpaying for a business because high market expectations leave little room for error and create downside risk if financial targets are not met. Amazon offers an attractive opportunity today. The company’s stock is trading at a 10-year low price-to-earnings ratio of 28.9 times.
These three questions are related to understanding the company, identifying its moat, and analyzing its valuation and provide investors with valuable filters early in the research process.
Neil Patel has no position in any stocks mentioned. The Motley Fool has positions in and recommends Amazon and Berkshire Hathaway. The Motley Fool has a disclosure policy.
The Motley Fool is a USA TODAY content partner providing financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.
