Is This Cheap Stock a Trap? Free Red Flag Scanner

What this red flag scanner does

A stock can look cheap for a good reason. Sometimes the company is in trouble, and it has already said so. US companies must tell the SEC about serious problems. The SEC is the US regulator for stocks. The trouble is where they say it: deep inside a 100-page annual report.

This scanner reads those reports for you. Type a ticker and you see:

• The verdict first. How many serious warning signs we found, or that we found none of the ones we check for.
• The company's own words. Each sign comes with the exact sentence from the filing. We never rewrite it.
• A link to the source. One click opens the filing on the SEC's website, at that sentence.
• What we read. Which reports, their dates, and the five signs we looked for.

It is free and you don't need an account.

What we read

We read three kinds of filings. All are free on the SEC's website.

• The 10-K. This is the yearly report every US-listed company files. It holds the accounts and the auditor's letter.
• The 10-Q. This is the quarterly report. We read the latest one, because it can say a problem got fixed, or got worse.
• The 8-K. This is a short notice of a big event. A company files one within four business days of, say, finding out its past accounts were wrong.

We read the latest 10-K, the latest 10-Q and every 8-K filed since. A new 10-K is read the night after it appears.

The five warning signs we look for

We check five signs. We picked them because we can check them reliably on real companies. We don't check lawsuits, investigations or debt yet.

The first three are serious: the company itself admitted a real problem. The last two are worth knowing: not a problem on their own, but a reason to look closer.

1. Doubt it can keep going. Serious. The company or its auditor says it may run out of money within a year. This is called a "going concern" warning. It is the loudest alarm in a 10-K.
2. Weak checks on its own accounts. Serious. The company says its controls over its accounts failed. This is called a "material weakness". Mistakes can slip into the numbers you rely on.
3. Its past accounts can't be relied on. The company filed an 8-K (a short event notice) with a section called Item 4.02. In it, the company says numbers it already published should no longer be trusted. This usually means a "restatement": the company has to redo them. We show it for 24 months after the notice. We only show it when the notice exists, never from a passing mention in a long report.
4. One big customer. Worth knowing. One customer brought in 25% or more of the company's sales last year. That is a quarter of every dollar it sells. If that customer leaves or pays less, sales can drop fast.
5. Changed auditor. Worth knowing. The company changed its auditor in the last two years. The auditor is the outside firm that checks its books. Companies switch for dull reasons, like cost. But a switch can also follow a fight over the accounts, so read why.

How to read a result

Start with the first line. It is the verdict.

• "2 serious warning signs": read each quote. Then click through to the filing. Some problems are old news and already in the price. Some are not.
• "None of the warning signs we check for were found": we read the whole report and found none of the five signs above. That is good, but it is not a promise that the company is safe. We don't check lawsuits, investigations or debt yet.
• "We couldn't fully check": part of the report didn't read cleanly. We never say "none found" when we didn't read everything.
• "Not checked yet": we haven't read this company's report yet. Its stock page shows everything else we know.

What the scanner can't tell you

We report what the company told the SEC. That is all. So:

• It checks five signs, not everything. Lawsuits, investigations and debt are not part of it yet.
• It reads filings, not the future. A problem that started after the last report won't show until the company files about it.
• It can't catch what a company hides. Fraud is, by design, not in the filings.
• It doesn't judge the price. A company with no warning signs can still be too expensive. One with a serious sign can still be cheap enough.
• It never says buy or sell. It tells you where to look.

Read a 10-K yourself in 15 minutes

You don't need to read all 100 pages. Go to the SEC's EDGAR site, search the company, and open the latest 10-K. Then jump to these parts:

1. The auditor's report (inside Item 8). Search for "going concern" and "material weakness".
2. Item 9A, Controls and Procedures. Look for the words "not effective".
3. Item 3, Legal Proceedings. Who is suing the company, and who is investigating it.
4. Item 1A, Risk Factors. Long and full of "could" and "may". Skim for anything specific to this company.
5. The debt note in the financial statements. When is the debt due, and how much?

The scanner does the first two for you every night, plus notices that past accounts can't be relied on, big customers and auditor changes. Parts 3 to 5 are still yours to read.

Questions

Is it really free? Yes. There's no account and no limit, apart from a cap on checks per minute to stop robots.

Which stocks does it cover? US-listed companies that file a 10-K with the SEC. Foreign companies that file other forms are marked "not checked".

How fresh is it? We read new 10-Ks and 8-Ks every night. Each result shows the date of the report we read.

Why does a big, famous company show a sign? Big companies can have weak checks too. Read the quote. A sign at a huge company can matter less than it sounds.

Why don't you check lawsuits, investigations or debt? Not yet. We still compute them, but we only show a sign once we can check it reliably. Before we show a sign, we test it on fresh companies we haven't looked at before. Big customers and auditor changes passed that test. We will add more when they pass it too.

What should I do if I see a serious sign? Read the quote and the filing. Then ask whether the price already reflects it. That is the question a full analysis answers.

The next step

Warning signs tell you what could go wrong. They don't tell you what a business is worth. Every company page shows the price check and the quality checks next to its warning signs. When you want a full answer, ask for the deep dive on any stock page.

Want cheap stocks to check first? Start with today's list of undervalued stocks. For the price question, try the free DCF calculator or the margin of safety calculator.