How to Research Stocks? Stock Market for Beginners
If you find yourself with more time or you want found interest in learning how to become your own stock analyst, there are different ways to determine which stocks are for you.
Investors attempt to get ahead by making their own informed decisions by studying and evaluating past and current data.
It is always recommended to analyze a stock before investing in order to succeed long term. Investors make buying and selling decisions in the hopes that they can make multiple times return from their investment.
Understand the Company
Going over analyst reports is the best way to understand everything about a company. Other analysts conduct research about companies including strengths, weaknesses, and competitors.
The reports detail almost everything to know about the future of the company and how well they are performing.
It may take just a quick google search, to understand what the company stands for and how the company makes money.
It’s essential to understand the company so that you make the right decisions about whether you should hold or sell the stock.
You should invest in companies that you have an interest in so that you are more likely to follow your investment.
What to Analyze
Once you have an understanding of what kind of companies you would like to invest in, it’s best to look into a company’s financial strength.
That includes looking at the companies balance sheet, profit loss statement, and cash flow statements.
It also includes the revenue which determines the specified period of how much the company brought in and the net income of the company after operating expense and taxes were subtracted.
Also, the total debt of a company is a big factor to check before investing. Companies with large debt should be avoided considering they have to pay the debt first and pay interest on the borrowed money.
Focus also on the earnings per share (P/E) as it can show a company’s profitability on a per-share basis. This can be where you can compare among the company’s competitors.
According to Nerdwallet, you should also pay close attention to the return on equity (ROE) and return on assets (ROA).
As it will reveal how much profit a company produces with shareholder dollars as well as show how much profit is generated with the companies assets.
How well a company also does in terms of its competitors also determines how well they are doing. A company always has its weaknesses and strengths that should be well researched.
Determine the key differences and similarities of the companies of similar industries that are causing one to be more successful than the other if possible. Basically determining if the company has any advantage competitively.
According to Trade Brains, they state, “You should be able to answer the question that why you are investing in this company and not any of its competitors.”
While it may be challenging to predict the growth of the company, paying attention to the companies past can be an indicator of how well a company will do in the future as well.
It can also be helpful to determine based on what-if scenarios if something were to go wrong sometime in the future.
Once you have found what works for you in terms of future earnings, you should also look into how much the current market price of the stock is justified in comparison to the company’s value.
Stock analysis is a process and it should be well researched before investing. You are determining which company you would like to see potential growth in for years to make the most of your investment.
While it may be easier to find a broker who can decide for you, some find enjoyment in making that decision of which to invest.