how to properly research a stock

How to Research Stocks: Step-by-Step Guide

• Determine how much you're going to invest. ...
• Decide what you're going to invest in. ...
• Examine company reports. ...
• Review the financials. ...
• Understand the company’s industry. ...
• Look at the company's leadership. ...
• Check how the company's values align with yours. ...
• Read expert opinions. ...
• Final thoughts on researching stocks. ...

Full Answer

How long does it take research a stock?

In 2022, employees under 50 will be generally able to contribute up to $20,500 to their 401 (k) style retirement plans. If you sacrifice to sock away that much for just one year, then around 41 years later, you might wake up to find out you're a millionaire. While that path might work, it's an incredibly risky path to get to millionaire status.

How to research a stock before you invest?

Stock research: 4 key steps to evaluate any stock

1. Gather your stock research materials. Start by reviewing the company's financials. ...
2. Narrow your focus. These financial reports contain a ton of numbers and it's easy to get bogged down. ...
3. Turn to qualitative research. ...
4. Put your research into context. ...

How to analyze stock for beginners?

With that in mind, let's take a look at four of the most important and easily understood metrics you should have in your analytical toolkit:

• Price-to-earnings (P/E) ratio: Companies report their profits to shareholders as earnings per share, or EPS for short. ...
• Price-to-earnings-growth (PEG) ratio: Different companies grow at different rates. The PEG ratio takes a stock's P/E ratio and divides by the expected annualized earnings growth rate over the next few ...
• Price-to-book (P/B) ratio: A company's book value is the net value of all of its assets. ...

More items...

What is the best way to analyze stocks?

Fundamental vs. Technical Analysis. There are two essential methods to analyze a stock. Long-term investors use fundamental analysis of a company’s financial statements, such as earnings, sales, dividends, and future cash flow valuations. Stock Traders use the technical analysis of stock charts, prices, patterns, and supply and demand using ...

How to research a stock?

To research a stock, start by going online to the company’s website or a third-party stock-rating website. Take a look at the company’s revenue over time to see if they’re growing and making more money. Additionally, check the company’s gross profit margin, which tells you how much money they’re making after costs are taken into account. Another thing you should examine is the company’s debt, keeping in mind that lower debt is usually better. You’ll also want to check out return on equity to see how much profit the company is making with its investors’ money. For information from our Financial Advisor reviewer on how to calculate a stock’s price-to-earnings ratio and compare it to other stocks, read on!

Why is it important to research stocks?

Researching a stock is an essential step before making an investment. If your investments are not informed by a solid research process, you could subject yourself to risks that would have otherwise been avoidable.

Why is it important to look at past and future earnings?

Examine the company's earnings growth. In investing, high levels of earnings growth means high levels of share price growth. It is for this reason that looking at past and future growth is important. Note that earnings are synonymous with profits.

How many readers approve wikihow?

wikiHow marks an article as reader-approved once it receives enough positive feedback. In this case, 88% of readers who voted found the article helpful, earning it our reader-approved status.

How to research a fertilizer company?

Learn what the company does. The first step to researching any company is to find out precisely what the business produces, and how it makes money. For example, assume you have heard good things about a particular fertilizer, and you are interested in investing in the company that makes it. You would want to familiarize yourself with the types of fertilizer it produces, who the typical customers are, and if there are other products or services the business provides.

How to find the NAIC number?

Look for basic industry information. Start by figuring out specifically what industry your chosen company is in. Industries are split up into categories by the North American Industry Classification System (NAICS). These are numbered categories and refer to a broad industry within the North American economy. NAIC's numbers can be found easily online. Then, do research to assess the size of the industry. Look for annual industry revenues and the number of companies in the industry. In addition, find figures on industry growth, including annual percentage growth and growth in the number of companies.

How to assess the future of an industry?

Assess future trends in the industry. Look into industry growth, trends, and expectations for the future. For example, consider any new products or types of products that might transform the industry in the coming years. Or, perhaps the industry is shrinking as another slowly replaces it. Look for consolidation or expansion in the number of companies in the industry. How these factors affect your chosen company can vary dramatically, but it is important to understand what's going on in the industry.

What are the two ways to analyze stocks?

When it comes to analyzing stocks, there are two basic ways you can go: fundamental analysis and technical analysis .

Why is it important to analyze stocks?

Analyzing stocks helps investors find the best investment opportunities. By using analytical methods when researching stocks, we can attempt to find stocks trading for a discount to their true value, which therefore will be in a great position to capture market-beating returns in the future. Image source: Getty Images.

How to gauge financial health?

Debt-to-EBITDA ratio: One good way to gauge financial health is by looking at a company's debt. There are several debt metrics, but the debt-to-EBITDA ratio is a good one for beginners to learn.

What are some examples of industry trends?

For example, over the past decade or so, the percentage of retail sales that take place online has grown from less than 5% to more than 11% today. So e-commerce is an example of an industry with a favorable growth trend. Cloud computing, payments technology, and healthcare are a few other examples of industries that are likely to grow significantly in the years ahead.

What is the difference between technical analysis and fundamental analysis?

One important distinction is that fundamental analysis is intended to find long-term investment opportunities, while technical analysis typically focuses on short-term price fluctuations. We generally are advocates of fundamental analysis and believe that, by focusing on great businesses trading at fair prices, investors can beat the market over time.

Is there a perfect way to research stocks?

If you think I'm picking a few metrics to focus on and basing my opinions on them, you're right. And that's the point: There's no one perfect way to research stocks, which is why different investors choose different stocks.

Is a fast growing company cheaper than a slow growing company?

The idea is that a fast-growing company can be "cheaper" than a slower-growing one. Price-to-book (P/B) ratio: A company's book value is the net value of all of its assets. Think of book value as the amount of money a company would theoretically have if it shut down its business and sold everything it owned. The price-to-book, or P/B, ratio is ...

How to get a sense of how insiders are valuing the stock?

A great way to try and get a sense of how insiders are currently valuing the stock is by looking at recent insiders transactions.

What is a balance sheet in stocks?

For those who are still learning how to research stocks, the balance sheet is where the company’s assets and liabilities are listed. So if you had your own balance sheet, your assets would be things like your cash, your car, your house, etc. Your liabilities include things like bills you haven’t paid, and most importantly, your DEBT.

Why is pricing power so powerful?

The reason pricing power is so powerful is because in economic downturns are even when new competitors enter the market, you’re still able to charge the same prices or even raise them. Compare that to a commodity based business where you can go bankrupt if the product you sell crashes in price.

Is revenue predictable every quarter?

Every investor’s favorite type of revenue. It’s easily predictable every quarter, and make your life very easy when doing your modeling and stock valuation work.

Do we make mistakes when learning how to research stocks?

We are all going to make mistakes when learning how to research stocks.

What to do once you have identified a stock to invest in?

Once you’ve identified a potential stock to invest in, you can start your research to help you determine whether or not investing in the stock is the best decision to make.

How to tell if a stock is undervalued?

A key way of figuring out if a stock is undervalued is by looking at a company’s projections.

What is a stock buyback program?

A Stock Buyback Program, also known as a share repurchase, is often overlooked by investors, but it can be a sign that the management thinks the stock is undervalued. This is when a company buys back its shares from the marketplace with the cash it has accumulated.

What makes a good stock broker?

A good stock broker should have all the research tools and resources needed to help you make the right decision. Depending on the broker, they might offer advanced reports or an in-depth database of information that you should take advantage of.

Why is it bad news for a company?

And it’s usually bad news for a company because if the public start to dislike a company, then they probably won’t buy products or services from that company.

Why is research important?

Although we may not be able to completely overcome them, we can become aware of our weaknesses, and put the work in to help make our decisions more objective. This is another reason why research is so important.

Is it necessary to read a company's report?

Reading a company’s reports’ is always necessary, and although it might sound a bit scary at first, fear not, we’re going to highlight the important ones, and the crucial information to look out for. So, for reports, we advise you look at 10-Q, and the 10-k.

How to further research on stocks?

A great way to further stock research is by following industry experts, such as highly regarded equity analysts. These experts often publish in-depth stock research which can be a good way to draw comparisons between individual and expert analysis. This is also a good way for investors to broaden equity analysis techniques by studying the analyst’s approach and what they look for in making investment decisions.

Why is it important to understand the stock industry?

Understanding an industry allows for more in-depth research in terms of variable inputs and nuances that cannot often be retrieved from financial statements.

Why do investors have shorter time horizons?

The opposite would be true for shorter time horizons (under five years) as these investors have less tolerance for large drawdowns in the portfolio, as larger adverse market movements can create a long-lasting effect for someone nearing retirement that may need to soon begin drawing income from the portfolio.

Why is broker fee important?

Broker fees. 1. Investment time horizon. Time horizon is important as it allows investors to identify which types of stocks may align with their goals. For example, many young investors with long time horizons are willing to take on more risk when it comes to an investment portfolio.

What is the meaning of liquidity in stock market?

Stock market liquidity refers to the ease at which the company shares can be bought and solid without experiencing large price fluctuations. Large companies with high liquidity such as Apple Inc will often have tighter spreads with a larger volume of shares available to buy/sell at a given price.

What are the three key details of a stock?

Stock research in a general sense begins with an understanding of three key details about a company: Present financial health. Current management. Future vision and roadmap.

What to do after research has been completed?

After the research has been completed, investors will need to place the order to buy the stock. Knowing how order types work in the stock market can help investors to better focus the execution of their strategies. Liquidity is another concept that can result in varying spreads and pricing.

Why is it important to research and choose a stock?

The process of researching and choosing a stock or a portfolio is intended to minimize your risk of losing your entire initial investment, and to have the potential to earn higher returns with an investment strategy.

How to look up a company's financials?

The SEC has its own online searchable database of such filings, called EDGAR. But there are a number of sites that will let you look up a company's required financial reports if you know the company's corporate stock trading symbol. The easiest and, these days, possibly quickest way, is to look up a company's own website and look for its "investors" page. That's where information for investors is kept, and published. Invariably, because all smart investors want to research a company, this is where you'll find the required reports.

What happens if a company's EPS is below analyst expectations?

As an investor, if a company reports EPS below analyst expectations, it usually will be reflected in a decline in the stock's price, and visa-versa for EPS above expectations. When considering an investment, or whether to continue to hold a stock or sell it, you want to see its earnings at least meet, consistently, if not beat, analyst expectations.

How to calculate PEG ratio?

Unlike the P/E ratio itself, the PEG ratio accounts for growth. To calculate a PEG ratio, you divide the stock's P/E ratio by its expected 12-month growth rate. If the ratio is less than 1.0, it has good prospects. If, however, it has a value greater than 1.0, its prospects are not that bright.

What does it mean when a company's P/E ratio is above average?

If a company's Price-to-Earnings, or P/E, ratio is above average for its particular industry, that's usually a signal the company is doing well enough for you to consider investing in it.

What does a stock certificate represent?

Remember a stock certificate represents your investment in, or share in the ownership of, a publicly-traded company. When you own stock, you own part of a company. You've given that company money for its business, its growth, and its profit-making potential.

What does insider trading mean?

In the investment world, "insider trading" means the volume of shares either bought or sold of the company by its managers and executives. If the managers and executives are confident of the company's ability to grow and provide solid returns on investment, it will be indicated by their buying stock in their own company. Similarly, however, if they are selling their stock, it can be an indication they've lost confidence in the company they work for, and that is a very bad sign. If the "net" insider activity on the stock for the past three months has been positive, it is a vote of confidence. If, however, it has been negative, it is an indication of a loss of confidence.

How to analyze a stock?

You can also analyze a stock by looking at its earnings per share. You may also see this referred to as a stock’s EPS. This will give you an idea of how much the company is earning and whether investors are benefiting from that. If a company’s EPS is growing, that can be a good sign. Most investors will become interested in purchasing stock in a company when it is earning good money. Generally speaking, the higher a company’s earnings per share is, the more those shares are worth.

How to make quick decisions about stocks?

The benefit of enrolling in this is that it can give you advice as well as information about the stock market. If you decide to analyze stocks yourself or use a stock terminal, you are left to make your own conclusions about which stocks are valuable. Enrolling in a stock advisor subscription program can help you make quick decisions about which stocks to invest in.

What does the peg value mean?

PEG value: The PEG value stands for the price-to-earnings growth ratio. This ratio is similar to the P/E ratio because it also compares a stock’s market value to its earnings per share. The PEG adds another factor by considering the company’s growth.

How to find the P/E ratio of a stock?

To find a stock’s P/E ratio, you divide its market value per share by its earnings per share. You’ll use this ratio to help you determine how valuable the stock is. Once you know the stock’s P/E, you can compare it to the stock’s competitors.

What is the benefit of enrolling in a stock terminal?

The benefit of enrolling in this is that it can give you advice as well as information about the stock market. If you decide to analyze stocks yourself or use a stock terminal, you are left to make your own conclusions about which stocks are valuable.

How much does Bloomberg cost?

The Bloomberg terminal is quite costly, however, and you can expect to pay between $20,000 to $25,000 per year for this access. Luckily, it’s not the only stock terminal available in today’s market.

What is a stock terminal?

Stock terminals are computer systems that allow you to access real-time financial data. Many people refer to the Bloomberg terminal when talking about stock terminals. The Bloomberg terminal has been around since the 1980s and it has built up quite a reputation over time.

How to research stocks?

Here are 5 ways you can research stocks and manage your investments using online tools—many of which you might already have at your disposal. 1. Research platform. One of the most helpful, do-it-yourself resources for investors is a research platform. A research platform can provide you with a wealth of information, ...

What do analysts do in stock research?

Just as news reports can be a market-moving event, so too can analyst research reports. Influential stock analysts—experts whose job it is to focus entirely on a particular sector or industry of the market —often have a valuable understanding of a company. While you may be researching stocks only when you have the time outside of your workday, analysts spend all their working time evaluating these stocks. Consequently, their views often can carry significant weight; analysts can move a stock with their recommendations alone, just like an important piece of news. For companies that have analyst coverage, you can find these ratings on the stock’s snapshot page.

What is the first step in investing?

Understanding your investing goals and risk tolerance, and knowing how to research stocks and other investments that meet those objectives, is the first step. Where the rubber meets the road is when you actually make an investment, and then how you manage that position over your investing time frame.

How to find out what is being said on social media?

To find out what is being said on social media, consider using the Social Sentiment indicator to see what news is trending. You can also sign up for StockTwits on a stock's snapshot page to get access to the latest tweets about a particular stock.

What is the importance of being aware of market news?

Being aware of potentially market-moving news can make a big difference when you are deciding when to buy or sell a stock. For instance, what if you did all the research you wanted to do, and then a major news report was released, but you didn’t know about it? The news could have a major impact on the stock price—something that could affect your decision to buy or sell the stock.

What is technical analysis?

Another method of analysis, known as technical analysis, involves looking at charts to try to detect tradable patterns. You can do this too on Fidelity.com, as well as on Fidelity's trading platform for active traders—Active Trader Pro ®.

What is fundamental analysis?

Fundamental analysis is the process of evaluating a company's business performance and competitive positioning— such as revenues, expenses, earnings, and cash flow. This information can be found on Fidelity.com.

Does past performance necessarily indicate future growth?

I do this too, for whatever reason, although it really doesn't matter. Past performance doesn't necessarily indicate future growth.

Can you post stock on /r/stocks?

Almost any post related to stocks is welcome on /r/stocks. Don't hesitate to tell us about a ticker we should know about, but read the sidebar rules before you post. Check out our wiki and Discord!

Is Stocktwits bad?

Stocktwits isnt all bad. Sometimes if Im having trouble finding something breaking on a company someone likely posted it the companies page. However buying just from reading comments probably wont end well.