Stocks are a form of investment that allows an investor to own part of a company. There are many reasons why companies sell shares to investors. It is pertinent as an investor to do your due diligence before buying in a company.
Stock Research
Stock research is a lot like buying a car or a house, and you need to look at all features from technical to personal preferences. You discover things like insider stock ownership changes that might affect the stock’s value by doing research. Also, you get to put a company under a microscope to determine if it is worth adding to your portfolio. Here are a few tips for researching a stock.
Get Your Stock Research Materials
A company’s financials is the right place to begin your research. The financials are among the crucial determinants of whether you get to buy a company’s stock or not. Going over the annual report helps you gain more knowledge about a company. Annual reports also help give you the future growth outlook of the company.
You can get more financial information from a company’s documents such as Form 10-K and Form 10-Q. Companies are required to file them by the U.S Securities and Exchange Commission. Your brokerage’s firm website may provide you with the information needed. Through research, you compare the company’s performance against the competition to get the best candidate for your investment.
Focus on Important Investing Metrics
There are other sectors of a company that you must research before committing your money. Narrowing your focus helps you not get lost in all the numbers in financial reports, research in smaller portions of the industry such as.
- Revenue. This is the money brought in by a select company during a specific period. Such information is put in income statements referred to as ‘top line.’ Revenue is broken down into operating revenue, which is gotten from its core income and running business. The other one is nonoperating revenue which comes from one-time business deals. Operating revenue is the one you must look into with keen interest.
- Net Income. This is similar to the gross salary for an employee. After all the necessary deductions like taxes and operating expenses, the total amount made is the company’s net income. Such information helps you point out the best investment opportunities.
- Earnings and Earnings Per Share (EPS). The earnings of a company roughly translate to its capital, and there are many ways in which companies use their profits. Some reinvest, while others use it to pay their shareholders in the form of dividends. Earnings Per Share is dividing earnings by the number of shares to be traded. This process shows the company’s profitability in terms of individual claims. It helps you compare with other companies on the best to put your dollars in for great profitable returns.
Look Beyond the Numbers
Researching stock is more than considering the valuation metrics. Many factors determine how a company is run or its profitability. As a self-reliant investor, it would be best to look into all those factors. It is better to invest in a profitable business than a cheap stock; apart from a business’s financials, you should also watch.
- Durable Competitive Changes. As a long-term investor, it is good to know if the company you are putting your investment dollars in will sustain its value over time. An economic moat is a name given to analyzing a business’s model before buying stocks.
- Management. A company is only as good as its leadership team. Proper management is required for ensuring a company’s success. You should scrutinize the management of a company before deciding to invest.
- Industry Trends. It is wise to look into a company’s long-term growth prospects to get good returns on your investment. Put your money in industries with great potential to grow significantly in the coming years.
Look Into Qualitative Research
Qualitative research is meant to answer the big-shot questions a self-reliant entrepreneur must ask. You must look at the sources of income of the business and the industry’s competitive nature advantage concerning the select company.
Considering all that could go wrong in the business, it is an excellent strategy to apply when researching the company. Study the business’s history for a while to determine a pattern of consistency or inconsistency. Always remember, you buy a stock to own part of the company not only because the stock could go up.
