When looking to buy a stock, what is the most important thing you look for?

Stocks are usually valued in several ways:

1) By earnings potential, or P/E ratio,
2) By reliability or sustainability of earnings, or
3) By cash flow

1) - typically is employed for high potential companies - ie companies which have little earnings today but a propensity for large gains in the future - for eg companies in R&D etc where a "killer product" might emerge. A high P/E generally comes about from peoples' expectations of future growth. Evaluating such companies are typically more difficult as investors have to sort out the gems from the hype, and thus are fairly high risk by nature

2) - otherwise known as "blue chips", these companies offer stable and sustainable income in the form of consistent dividend policies and some capital growth over the long term. They are typically market leaders in their industry and are thus valued at a rate of return that is consistent with their lower risk category, thus typically have a lower P/E

3) - also known as value investing, this somewhat differs from 2) in the sense that it takes into account cashflow more than earnings. Theoretically a company may be making an accounting loss and yet be cashflow positive (ie they are in a cash or near cash business, for eg telecoms and utility stocks. There is little or no consideration given to the profitability or sustainability of the company in the long term. Rather, a simple nett asset value computation is used where so long as the NAV per share trades at a certain percentage discount to share price (typically 60% or more discount), they represent a "value investment". This is where NAV is defined as current assets (less of inventory, which is relatively illiqud) minus all short and long term liabilities. In other words, should the company be shut down tomorrow, the "return" would be around 3 times your investment. The company should also have a good dividend policy which pays out a relatively high portion of their net cash flow. The company should also not be too tightly held, else the individual investor might be disadvantaged, even though there are laws to protect minority investors in most cases.

Comment: I contribute to Yahoo! Answers, and sometimes when there is a question I feel is pertinent to this blog, I add the same answer here.