An indicator of potential problems with a security. Most often used to refer to a stock, a red flag can be any undesirable characteristic that stands out to an analyst. There is no universal standard for identifying red flags; the method used will depend on the investment methodology being employed. Taobiz explains Red Flag A red flag is anything that marks a stock as undesirable. Because there are many different methods used to pick stocks, there are many different types of red flags. What is a red flag for one person might even be considered desirable by another. For example, low institutional ownership might be a positive for someone looking for undiscovered companies, but a negative for a pension fund that searches out blue chips.