You can dodge big, portfolio-crushing losses if you know what to look for. Case in point: Valeant Pharmaceuticals, a former market darling that recently suffered a dramatic fall from grace.

Valeant provides an excellent case study because the warning signs were there for all to see. Here are the red flags we look for to avoid the Valeant-style meltdowns that can devastate your investment returns.

An unsustainable business model. Valeant’s business strategy was focused on growth via acquisitions, followed by slashing expenses and jacking up prices of the acquired drugs. Since 2010, the company has gone through this process 50 times, shelling out $35 billion on these acquisitions.

The former CFO of Valeant, now dismissed, stated on record that management spent about half of their time on acquisitions and the rest on the management of the business. This was understandable, given the hectic pace of acquisitions, but obviously concerning. They were too busy looking for the next deal to focus on integrating the acquisitions and managing the sprawling, ever-more-complex business.

According to Rx Saving Solutions, Valeant increased the prices of 147 drugs by an average of 76% between 2014 and 2015, with the single highest increase a whopping 608% for the drug Cuprine. But the company slashed research and development costs — the lifeblood of future growth for pharmaceutical companies — to 3% of sales, an industry low. None of these practices are sustainable, according to pharma industry experts.

Too much debt. By the end of 2014, Valeant held $15 billion of debt on its balance sheet. Debt ballooned to $31 billion by the third quarter of 2015 – a whopping five times equity. Interest cover was down to 1.4 times by the third quarter of 2015, from 2.0 times at the end of 2014.

We become uncomfortable when companies with stable income streams have more debt than equity. Debt of five times equity for a business with a volatile and unpredictable income stream is way beyond our risk appetite.

An abnormally low tax rate. Valeant, originally a US-domiciled business, set up its corporate head office in Montreal to take advantage of the lower Canadian corporate tax rate, around 26%. However, its effective tax rate hovered in the single digits as it set up or acquired multiple offshore tax domiciles – a strategy described by tax experts as “…aggressive, difficult to sustain and subject to intense scrutiny from tax authorities.”

Companies with low effective tax rates invariably become subjects of tax authority investigations, which can distract management and result in penalties for previous inadequate filings.

A monster valuation. Based on the profit generated under generally accepted accounting rules (“GAAP”), the company had a price to earnings ratio of over 100 times by June 2015.

The only way to justify such a valuation for an already large company is to assume that profits will grow rapidly either organically or with increasingly large and favorable acquisitions. These are huge assumptions that leave no room for error.

Cryptic financial statements. Valeant’s ongoing acquisitions made quarterly profit announcements extremely difficult to understand. Management’s focus on non-GAAP “adjusted cash earnings” did not help simplify their financial statements.

Without exception, when you see a large gap between GAAP profits and “adjusted profits” as presented by management, you need to ask questions. Investors need to understand why the gap exists. If you can’t, it’s the reddest of red flags.

High executive turnover. Valeant consistently changed executive management to such an extent that only two of the top team remain unchanged between 2011 and 2014. Seven executives departed in this short period.

Top teams at successful companies often stay together for decades. High turnover is often an indication of underlying problems either with internal management politics or the direction from the top.

Negative insider comments. Valeant attempted to acquire another major pharmaceutical company, Allergan, in 2014. The resistance put up by Allergan’s board was extraordinarily vehement. It was clear that Allergan’s leaders were not interested in a Valeant takeover at almost any price.

That’s a big red flag. Allergan’s board had no confidence that Valeant could be successful in the long run; rather, they saw the company as a house of cards that would eventually collapse. Supporting details were provided in a presentation filed with the SEC in May 2014. Anybody that read that publicly available document would have had serious concerns about an investment in Valeant.

A Note on Stop-Loss

Some investors argue that a simple stop-loss strategy would allow them to invest in stocks like Valeant while protecting against disastrous share-price collapses. But we all know how difficult it is to realize a loss. It’s even harder to admit that your initial investment thesis may be wrong. Better to avoid disasters as far as possible by regularly checking your own equity investments against the red flags listed above.