how to do research for stocks

Once you've made your investment choices, managing them is critical to being successful. You can use all the tools mentioned above to monitor and research your open positions. There are also ways to determine whether the stocks you’ve researched and chosen are a good mix when looked at as a whole.

Fidelity offers a Planning & Guidance Center , a guidance tool that compares your current portfolio with your target asset mix so you can evaluate areas that may need adjustment. This portfolio-level review can be a great way to see whether the stocks that you've researched are collectively meeting your investing objectives. You may also want to consider Fidelity's Guided Portfolio Summary SM Log In Required which can help you break down the investments in your portfolio and identify areas that may need more attention.

Research stocks, ETFs, or mutual funds

Get our industry-leading investment analysis, and put our research to work.

More to explore

5-step trading guide, read more viewpoints, subscribe to fidelity viewpoints ®, looking for more ideas and insights, thanks for subscribing.

• Tell us the topics you want to learn more about
• View content you've saved for later
• Subscribe to our newsletters

We're on our way, but not quite there yet

Oh, hello again, thanks for subscribing to looking for more ideas and insights you might like these too:, looking for more ideas and insights you might like these too:, fidelity viewpoints ® timely news and insights from our pros on markets, investing, and personal finance. (debug tcm:2 ... decode crypto clarity on crypto every month. build your knowledge with education for all levels. fidelity smart money ℠ what the news means for your money, plus tips to help you spend, save, and invest. active investor our most advanced investment insights, strategies, and tools. insights from fidelity wealth management ℠ timely news, events, and wealth strategies from top fidelity thought leaders. women talk money real talk and helpful tips about money, investing, and careers. educational webinars and events free financial education from fidelity and other leading industry professionals. fidelity viewpoints ® timely news and insights from our pros on markets, investing, and personal finance. (debug tcm:2 ... decode crypto clarity on crypto every month. build your knowledge with education for all levels. fidelity smart money ℠ what the news means for your money, plus tips to help you spend, save, and invest. active investor our most advanced investment insights, strategies, and tools. insights from fidelity wealth management ℠ timely news, events, and wealth strategies from top fidelity thought leaders. women talk money real talk and helpful tips about money, investing, and careers. educational webinars and events free financial education from fidelity and other leading industry professionals. done add subscriptions no, thanks. analyzing stock fundamentals investing for beginners finding stock and sector ideas using technical analysis advanced trading strategies trading for beginners using margin etfs mutual funds investing for income stocks options trading entails significant risk and is not appropriate for all investors. certain complex options strategies carry additional risk. before trading options, please read characteristics and risks of standardized options . supporting documentation for any claims, if applicable, will be furnished upon request. past performance is no guarantee of future results. technical analysis focuses on market action — specifically, volume and price. technical analysis is only one approach to analyzing stocks. when considering which stocks to buy or sell, you should use the approach that you're most comfortable with. as with all your investments, you must make your own determination as to whether an investment in any particular security or securities is right for you based on your investment objectives, risk tolerance, and financial situation. past performance is no guarantee of future results. the equity summary score is provided for informational purposes only, does not constitute advice or guidance, and is not an endorsement or recommendation for any particular security or trading strategy. the equity summary score is provided by starmine from refinitiv, an independent company not affiliated with fidelity investments. for more information and details, go to fidelity.com. the fidelity security screener is a research tool provided to help self-directed investors evaluate these types of securities. the criteria and inputs entered are at the sole discretion of the user, and all screens or strategies with preselected criteria (including expert ones) are solely for the convenience of the user. expert screens are provided by independent companies not affiliated with fidelity. information supplied or obtained from these screeners is for informational purposes only and should not be considered investment advice or guidance, an offer of or a solicitation of an offer to buy or sell securities, or a recommendation or endorsement by fidelity of any security or investment strategy. fidelity does not endorse or adopt any particular investment strategy or approach to screening or evaluating stocks, preferred securities, exchange-traded products, or closed-end funds. fidelity makes no guarantees that information supplied is accurate, complete, or timely, and does not provide any warranties regarding results obtained from their use. determine which securities are right for you based on your investment objectives, risk tolerance, financial situation, and other individual factors, and reevaluate them on a periodic basis. fidelity ® guided portfolio summary (fidelity® gps) is provided for informational purposes only and is not intended to provide legal, tax, investment, or insurance advice, nor should it be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security by fidelity or any third party. you are solely responsible for determining whether any investment, investment strategy, security, or related transaction is appropriate for you based on your personal investment objectives, financial circumstances, and risk tolerance. you should consult your legal or tax professional regarding your specific situation. stock markets are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. stock markets are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. for the social sentiment indicator, this independent information provider applies a proprietary methodology to data from public social media sites to analyze what is being said about specific stocks. data from social media sites is often from anonymous sources, may not be verified for accuracy or completeness, and may reflect only limited activity. use of this information is not a substitute for investment research regarding a particular security. this information is provided by social market analytics, an unaffiliated third party vendor which uses its own proprietary methodology to analyze data from public social media sites to provide information about specific stocks, and fidelity has not validated the integrity of this data. important: the projections or other information generated by fidelity’s planning & guidance center retirement analysis regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. results may vary with each use and over time. investment decisions should be based on an individual's own goals, time horizon, and tolerance for risk. fidelity brokerage services llc, member nyse, sipc , 900 salem street, smithfield, ri 02917 718281.6.0 mutual funds etfs fixed income bonds cds options active trader pro investor centers stocks online trading annuities life insurance & long term care small business retirement plans 529 plans iras retirement products retirement planning charitable giving fidsafe , (opens in a new window) finra's brokercheck , (opens in a new window) health savings account stay connected.

• News Releases
• About Fidelity
• International
• Terms of Use
• Accessibility
• Contact Us , (Opens in a new window)
• Disclosures , (Opens in a new window)

• Find a Branch
• Schwab Brokerage 800-435-4000
• Schwab Password Reset 800-780-2755
• Schwab Bank 888-403-9000
• Schwab Intelligent Portfolios® 855-694-5208
• Schwab Trading Services 888-245-6864
• Workplace Retirement Plans 800-724-7526

... More ways to contact Schwab

  Chat

• Schwab International
• Schwab Advisor Services™
• Schwab Intelligent Portfolios®
• Schwab Alliance
• Schwab Charitable™
• Retirement Plan Center
• Equity Awards Center®
• Learning Quest® 529
• Mortgage & HELOC
• Charles Schwab Investment Management (CSIM)
• Portfolio Management Services
• Open an Account

How to Research Stocks

Watch video: How to Research Stocks

Upbeat music plays throughout. On-screen text : Lou Mercer, CMT. Regional Investment Strategist  Narrator : So, you got a "hot" stock tip from a coworker, and they sound convincing—what should you do next? The short answer is, do your homework. As astute as your coworker may be, it's important to conduct due diligence on any investment before you put your hard-earned money at risk.

Due diligence, or DD, is all about research—making sure that you understand how a company operates so you can decide whether it's a good investment.

On-screen text: Due diligence. 1. Earnings. 2. Capital structure. 3. Management. 4. Expectations. Narrator : There are many aspects to due diligence. One part could include fundamental analysis because it delves into a company's ability to make money. At its core, it's the process of analyzing a company's financial statements, and studying other trends and data. That can help you determine whether a stock is fairly valued, undervalued, or overvalued by the market. Fundamental analysis is a large discipline as well, but you don't have to do it all by yourself. You can determine how much you're going to do and what you want to leave to the experts. There are many parts to due diligence, and in this video, we'll discuss four core ones: earnings, capital structure, management, and expectations.

On-screen text: Securities and Exchange Commission. SEC.

Animation: Text is replaced by a sample 10-Q and then a sample 10-K report.

Narrator : To get started, you need to know where to get the right information. Publicly traded companies are required by the Securities Exchange Commission, or SEC, to report financial information to the public in quarterly reports called 10-Qs and annual reports known as 10-Ks. Despite the name, it's not a race but instead a document filled with hundreds of pages of detailed financial information that can feel like a marathon to read. But there are tools to help analyze them if you know where to begin.

Some of the most important financial information for a business shows up in what is known as an income statement. There, you can see how much money, or revenue, is left over after accounting for a company's expenses like paying employees and utility bills. The end amount is known as net income, profit, or earnings, and is a crucial part of understanding a company's value. This is because the stock market is a place where people come to buy and sell the future earnings of a company.

Animation: A sample illustration of a bar graph showing rising revenues and earnings for each quarter over two years. Revenues and earnings are generally rising.

Narrator : A common rule of thumb is that earnings and revenues should be growing—quarter over quarter and year over year.  

But there's more you can do with that information, like compare how fast earnings are growing or determine how successful a company is at making a profit. But that would mean a lot of number crunching.

Animation: Four cards appear with different financial ratios. Net profit margin is net income over revenue. Debt to equity is total debt over total shareholders' equity. Price to earnings is market share price over earnings per share. Return on equity is net income over shareholders' equity.

Narrator: The crunching happens by taking data from these statements to calculate financial ratios. These ratios are standardized measurements that can help you analyze how well a company has performed, and what its future might look like.

Thankfully, the work has been done for you and you can get many of these tools and ratios for free in a more palatable way from most brokerages, like on the Research tab on schwab.com .

Animation: An equation is illustrated using a pile of cash labeled net income over a cash register labeled company's revenue. The peers and ratios comparison tool from Schwab.com replaces the ratio. It's set to overview. The net profit margin ratios for a company are highlighted. The "i" icon is selected and a graph of the net profit margin ratios for the company and some of its competitors appears.  

Narrator : One example of a ratio is net profit margin, which compares a company's revenue, or the total sales before expenses, to net income—the money it has left over after all the expenses are accounted for. Net profit margin is represented as a percentage, and a company with high margins is usually able to manage its expenses. This could mean it's good at turning a profit.  Profit margins, like other ratios, are great for determining if the company's growing compared to previous quarters and years. They're also good for comparing the company to its peers. Many investors identify top-tier companies by comparing ratios within an industry group.

Animation: The price-to-earnings ratio is illustrated with a stock certificate with a price tag over by a pile of cash labeled earnings per share. The price tag on the certificate changes to $20 and the pile of cash is changed to $1. The peers and ratios comparison appears again, it's still set to overview. The price/earnings line is highlighted.

Narrator : You can use the price-to-earnings ratio to see how much you're paying for a company's earnings and whether the stock is over or undervalued. It compares the price of a share of a company's stock to the company's earnings per share. If a stock is trading at $20 and its earnings per share are $1, then the stock has a P/E of 20. Some investors like to focus on companies with a lower ratio, believing it's a better value.

On-screen text: Due diligence. 1. Earnings. 2. Capital structure.

Narrator : Of course, there's other ways to examine revenue and earnings, but another core area of due diligence is a company's capital structure. It deals with how the business is funded.

Funding is done in a few ways, including selling equity by issuing stock shares or borrowing money in the form of things like bonds, mortgages, and other debt. If a company borrows money or incurs debt to make new products or otherwise expand, it can affect earnings. Debts have to be repaid, so they're essentially a claim on a company's future earnings.

A company with a good capital structure generally keeps its debt and other liabilities in check, while growing equity by retaining earning that can be reinvested into the company.

Animation: The peers and ratios comparison reappears on screen. It's now set to the Fundamentals tab. The long-term debt to equity line is highlighted.

Narrator : The debt-to-equity ratio is a good way to analyze how burdened a company might be by debt. A high ratio that is also higher than the company's peers could be a sign that the company has too much debt, which could be a drag on future earnings. However, debt levels vary from industry to industry, so peer comparisons are an important part of this analysis.

On-screen text: Due diligence. 1. Earnings. 2. Capital structure. 3. Management.

Narrator : I've talked about analyzing the books, but what about the people keeping the books? Management effectiveness analysis focuses on the ability of the management team to run the company, and it's one of a few soft data points that can be helpful when researching an investment.

Animation: The return on equity ratio is illustrated with a pile of cash labeled company's net income over shareholder's equity. The peers and ratios comparison reappears on screen. It's still set to the fundamentals tab. The return on equity line is highlighted.

Narrator : Successful management can seem abstract, but there's actually another ratio that can help grade how well management does at turning shareholder money into profits. It's called the return-on-equity ratio, and in this case, the higher the ratio, the better. It's calculated by dividing the company's net income by the average shareholder's equity. If a company has a higher number than its peers, investors might perceive that the managers are good at making money.

Animation: The peers and ratios comparison reappears on screen but is expanded to show the other ratings section. Analysts' ratings are highlighted in this area.

Narrator : It's not all about numbers, though. You can also find commentary directly from a company's management team on the company's investor relations website, in the 10-Qs and 10-Ks, and through analyst reports. Those statements can provide insights into what's on the minds of the people in charge, such as product promotions, growth expectations, or even potential dividends.

Animation: A sample 10-K report is on screen. The section titled macroeconomic conditions and related financial risks is highlighted. The page scrolls down to another section title business operations risks.

Narrator : Companies are also required to disclose any present risks they face, which may be an important factor in your investment decision. Risks can include lawsuits that could affect future earnings, or other trouble, like concerns that the company will struggle to market to certain customers.

That's a good reminder about the importance of diversifying the types of stocks you invest in. Investing in companies from several sectors and industry groups that don't usually rise or fall at the same time can help manage risk.

On-screen text: Due diligence. 1. Earnings. 2. Capital structure. 3. Management. 4. Expectations.

Narrator : While earnings growth, capital structure, and management are all important parts of conducting due diligence, much of what's being analyzed is in the past. Investors are most often concerned with the future prospects of a company. This is where the expertise of Wall Street analysts is helpful.

Animation : Three sample documents appear with different forward earnings estimates for three different companies.

Narrator : Banks and research firms around the world pay analysts to study many public companies. They publish frequent reports about their views, including what're known as forward earnings estimates that forecast what they think each company will earn for the upcoming quarter or year. They're educated guesses, but heavily researched ones that analysts make using their professional projections and models. Larger companies tend to attract more analysts, and the reports can be found through most brokerages, including Schwab.

Animation: The research tab on Schwab.com for a stock appears on screen. The screen scrolls down to the expected earnings section. Upcoming earnings and historical earnings are highlighted. Graphs for each estimate appear on screen with summaries and information related to earnings.

Narrator : Analyst estimates tend to be pretty big news when companies report earnings every three months. A company beating or falling short of estimates often result in big jumps or drops in the stock price.

Animation: A document titled analyst estimate appears. The earnings estimate is adjusted from $0.25 to $0.26 and then $0.27. A second company appears. Its estimate is reduced from $0.32 to $0.31 and then $0.30.

Narrator : However, outside of earnings announcements, positive adjustments to an analyst's estimates could be an indication the company may be doing better than expected. Negative estimate adjustments could be a bad sign for the company.

Animation: A bar graph titled cash flow growth appears on screen. The X axis is in years going out to 10. Each bar is made up of stacks of cash representing and estimate cash flow. The top portion of each stack of cash changes to red and a warning sign is placed over each bar. The red sections go away and the bars or stacks of cash shrink.

Narrator : Analysts estimates for the future growth of earnings can help investors calculate the intrinsic value, or fair market value, of a company. Anyone can calculate intrinsic value, but it's complicated. One method requires you to calculate earnings estimates for a company over a period of, say, five or 10 years, then discount those estimates based on how likely it is to happen.

Not only is the discounted future cash flows model complex, but it requires a few educated assumptions, so having analysts to rely on can be a big relief. However, if you are relying on someone else, even an analyst, make sure you understand their assumptions because they may have a different economic outlook, investing time frame, or bias, on the industry than you.

While a hot stock tip is exciting, without doing some due diligence, you could get burned. When you know what you're looking for and where to find it, it's a lot less overwhelming. Remember, the goal of due diligence isn't to make sure you know everything about a company. Instead, it's to help you evaluate the pros and cons so you can decide whether it belongs in your portfolio. On-screen text: Disclosure: On-screen text: [Schwab logo] Own your tomorrow ®

Schwab traders get in-depth research tools

More from charles schwab.

Calculate the Sharpe Ratio to Gauge Risk

How to Tell a Good Stock from a Bad Stock

Earnings Season: What to Look For

Related topics.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness, or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

Investing involves risk, including loss of principal.

Diversification and asset allocation strategies do not ensure a profit and cannot protect against losses in a declining market.

• Credit Cards
• All Credit Cards
• Find the Credit Card for You
• Best Credit Cards
• Best Rewards Credit Cards
• Best Travel Credit Cards
• Best 0% APR Credit Cards
• Best Balance Transfer Credit Cards
• Best Cash Back Credit Cards
• Best Credit Card Sign-Up Bonuses
• Best Credit Cards to Build Credit
• Best Credit Cards for Online Shopping
• Find the Best Personal Loan for You
• Best Personal Loans
• Best Debt Consolidation Loans
• Best Loans to Refinance Credit Card Debt
• Best Loans with Fast Funding
• Best Small Personal Loans
• Best Large Personal Loans
• Best Personal Loans to Apply Online
• Best Student Loan Refinance
• Best Car Loans
• All Banking
• Find the Savings Account for You
• Best High Yield Savings Accounts
• Best Big Bank Savings Accounts
• Best Big Bank Checking Accounts
• Best No Fee Checking Accounts
• No Overdraft Fee Checking Accounts
• Best Checking Account Bonuses
• Best Money Market Accounts
• Best Credit Unions
• All Mortgages
• Best Mortgages
• Best Mortgages for Small Down Payment
• Best Mortgages for No Down Payment
• Best Mortgages for Average Credit Score
• Best Mortgages No Origination Fee
• Adjustable Rate Mortgages
• Affording a Mortgage
• All Insurance
• Best Life Insurance
• Best Life Insurance for Seniors
• Best Homeowners Insurance
• Best Renters Insurance
• Best Car Insurance
• Best Pet Insurance
• Best Boat Insurance
• Best Motorcycle Insurance
• Travel Insurance
• Event Ticket Insurance
• Small Business
• All Small Business
• Best Small Business Savings Accounts
• Best Small Business Checking Accounts
• Best Credit Cards for Small Business
• Best Small Business Loans
• Best Tax Software for Small Business
• Personal Finance
• All Personal Finance
• Best Budgeting Apps
• Best Expense Tracker Apps
• Best Money Transfer Apps
• Best Resale Apps and Sites
• Buy Now Pay Later (BNPL) Apps
• Best Debt Relief
• Credit Monitoring
• All Credit Monitoring
• Best Credit Monitoring Services
• Best Identity Theft Protection
• How to Boost Your Credit Score
• Best Credit Repair Companies
• Filing For Free
• Best Tax Software
• Best Tax Software for Small Businesses
• Tax Refunds
• Tax Brackets
• Taxes By State
• Tax Payment Plans
• Help for Low Credit Scores
• All Help for Low Credit Scores
• Best Credit Cards for Bad Credit
• Best Personal Loans for Bad Credit
• Best Debt Consolidation Loans for Bad Credit
• Personal Loans if You Don't Have Credit
• Best Credit Cards for Building Credit
• Personal Loans for 580 Credit Score Lower
• Personal Loans for 670 Credit Score or Lower
• Best Mortgages for Bad Credit
• Best Hardship Loans
• All Investing
• Best IRA Accounts
• Best Roth IRA Accounts
• Best Investing Apps
• Best Free Stock Trading Platforms
• Best Robo-Advisors
• Index Funds
• Mutual Funds
• Home & Kitchen
• Gift Guides
• Deals & Sales
• Sign up for the CNBC Select Newsletter
• Subscribe to CNBC PRO
• Privacy Policy
• Your Privacy Choices
• Terms Of Service
• CNBC Sitemap

Follow Select

Our top picks of timely offers from our partners

Featured Investing Products

What to look out for when researching stocks, before you start buying individual stocks, here's what to keep in mind..

Many money moves we make require doing our homework beforehand.

When saving up for a big purchase, research tells us it's important to know the difference between a traditional savings account versus a high-yield savings account . (Hint: the latter grows your money faster.)

Or, when signing up for a new travel credit card , we're naturally inclined to first shop around for the cards offering the best welcome bonus .

And when it comes to investing our money in the market, doing our research is just as crucial. You don't have to be an expert to start buying stocks, but the more you know going in, the better off your investing journey will be.

Here's what to keep in mind when researching stocks.

Start with yourself: What's your risk tolerance?

People ultimately buy stocks with one end-goal in mind: to build wealth. But it's important to note here that wealth is not guaranteed. Investing in individual stocks carries much more risk than, say, buying bonds or putting your money in index funds .

As you begin to research stocks, first know how much risk you can take on, or your risk tolerance . Are you able to comfortably stomach large financial losses? Financial experts typically recommend that you only invest money in individual stocks that you can afford to lose and, since investment returns are typically maximized over the long haul, only invest money that you won't need in the short term.

So the money you want to use for a down payment on a house in the next year or so, or for your kid's college education in the next 15, is best put in different types of accounts — think a high-yield savings and 529 account , respectively.

Look to put your money in low-cost index funds that offer automatic diversification, thus less risk. Two popular examples are the Vanguard S&P 500 ETF (VOO) and the Schwab U.S. Broad Market ETF (SCHB) .

You could also enlist a robo-advisor to do the work for you. Using your risk tolerance and time horizon, a robo-advisor platform like Betterment , Ellevest or SoFi Invest® will create a customized investment portfolio on your behalf.

Next, onto stocks: What does the company do?

Warren Buffett once said, "Never invest in a business you cannot understand."

This may seem obvious, but it's worth reminding yourself that you should understand what the company does, or the products it makes, before buying into it. After all, as an investor, owning its stock means owning a portion of that company.

Before betting your money on a software company specializing in data security and analytics, for example, make sure you understand how the cybersecurity world works.

How does the company make money?

Understanding the company's product is one thing, but understanding its finances paints a bigger picture that an investor needs to see. A company can be innovative, but does it make money that will, in turn, make you money? Take tech companies as an example. You may understand and like the product (and even use it yourself), but how do they monetize their huge platform of users?

To dive into a company's financials, look up its annual reports. Publicly-traded companies offer annual reports for free to the public so that current and future stockholders can view the company's performance and see what it has been up to.

You can usually find a company's annual report on its website, under an "investor relations" tab. Googling the company's name and "investor relations" is also a shortcut that will bring you to the right spot. On this webpage, you can also find information on the company's quarterly earnings calls, which anyone can tune into, as well as access analyst coverage of the company.

Has the company historically performed well?

A company's historical performance isn't a sole reason to buy (or not buy) its stock, but it can help lend some insight into what you can expect.

Websites Google Finance and Yahoo! Finance allow investors to research historical data, such as price charts that go back several decades. Users can also compare stocks' historical data with one another.

Note that past performance does not guarantee future success — just because a company has performed well in the past does not mean that it will continue to do so in the future.

Select reviewed over 12 online brokers that offer zero-commission trading and narrowed down the top six platforms for all sorts of investors: TD Ameritrade ; Ally Invest ; E*TRADE ; Vanguard ; Charles Schwab and Fidelity .

These six offer the widest range of investment options, user-friendly technology, quality customer support and educational resources. You can read more about our methodology on selecting the best $0 commission trading platforms below.

Bottom line

Before you jump into the complicated and risky world of stock investing, take the time to just get your feet wet by doing research beforehand.

Start by understanding your risk tolerance, and then move onto understanding what the publicly traded companies do, what products they offer, how they make money and how they've performed in the past. Experts generally suggest that individual stock picks make up only about 5% to 10% of your overall investment portfolio, with the remaining put in less risky investments.

Our methodology

To determine which $0 commission trading platform offers the best services for consumers, Select narrowed down offerings to a list of 10 initial platforms. We then analyzed and compared each one based on the following factors:

• Account minimums
• Account types
• Account and advisory fees
• Customer support
• Expense ratios of available investments
• Selection of investments
• Trading fees
• Available technology, including mobile platforms
• Educational tools and resources

After reviewing the above features, we based our recommendations on platforms offering the widest range of investment options, robust educational tools and resources, user-friendly technology, as well as the lowest fees and expense ratios. We also looked into each company's customer support structure, available avenues of communication and app reviews.

Note that with all trading platforms, there are no guarantees you'll earn a certain rate of return or current investment options will always be available. To determine the best approach for your specific investment goals, speaking with a reputable fiduciary investment advisor is recommended.

• This is the best budgeting app to help investors track their money Jasmin Suknanan
• 5 best credit cards with pre-approval or pre-qualification Jason Stauffer
• American Express Blue Business Cash review: Keep it simple with this cash-back card Jason Stauffer

• Coaching Team
• Investor Tools
• Student Success
• Real Estate Investing Strategies
• Real Estate Business
• Real Estate Markets
• Real Estate Financing
• REITs & Stock Investing

How To Research Stocks: A Beginner’s Guide

Key Takeaways

Types of stock analysis

How to research stocks

Example of stock research

The stock market is one of the greatest wealth-building vehicles ever created by the U.S. economy. Since the S&P 500’s inception, annual returns have averaged 10.7%. A simple investment in the S&P 500 index has paid off well for long-term investors. Nonetheless, a large contingent of investors have been able to outperform the broader market by picking individual stocks. Choosing which stocks to invest in over an index fund can expose investors to more risk, but the returns to the upside are exponentially more attractive. In order to beat the market, however, investors will need to learn how to research stocks ; for most, that means conducting a fundamental analysis of individual equities.

How To Analyze Stocks

Stock prices are directly correlated to the global economy and its impact on investor sentiment. In other words, stock prices usually fluctuate based on how investors feel about a certain company and the macroeconomic conditions most likely to impact its future. That said, there are seemingly infinite factors that can impact the trajectory of a stock. Whether it is an accounting error on the company’s behalf or a multi-year pandemic, stock prices will move in the direction investors are convinced they belong.

Unfortunately, there are simply too many factors that can influence a stock price to account for them all. As a result, investors have developed several ways to research stocks in an attempt to uncover their true value. Despite their flaws, however, two strategies have risen to prominence. Any investor who wants to learn how to research stocks should attempt one of the following strategies:

Fundamental Analysis: As its name suggests, a fundamental analysis attempts to assume an equity’s true value based on fundamental indicators. Instead of assuming that a stock’s price is directly correlated to the intrinsic value of the underlying business, an in-depth fundamental analysis will determine the closest thing to a stock’s true value by looking at anything and everything that can affect its future share price. A thorough fundamental analysis will account for everything, from secular economic trends and the state of the economy to the number of outstanding shares and the quality of the management team. A number of valuation metrics have been created to assist investors in conducting a fundamental analysis, but the goal is always the same: to provide investors with a share price they can use to determine whether or not the equity is valued fairly relative to its peers.

Technical Analysis: Contradictory to its fundamental counterpart, a technical analysis ignores fundamental indicators. Instead of determining an equity’s fair value by assessing economic and financial indicators in relation to the company’s products or service, a technical analysis seeks to predict a stock’s price by referencing historical market performance. In other words, a technical analysis uses past performance to try and predict where a stock’s price will be in the near future. In studying the convergence of several statistical trends, like price and trading volume, a technical analysis will theoretically be able to tell investors where a stock price is going based on past performance.

To be perfectly clear, it is not possible to analyze a stock without an inherent degree of error; even these two stock research tools have their flaws. There is no way to predict the stock market or the direction individual equities will trend, but there is a way to place time on your side. With a sound stock analysis process, investors can increase their odds of beating the market over the long term and finding the best stocks to buy now .

How To Research Stocks In 4 Steps

In the event investors want to forego the technical analysis process and focus on researching an individual stock, they will be confronted with several options. Every investor and outlet, for that matter, probably has their own way to research stocks. That’s not to say one way is better than the other, or that there is only one way of analyzing equities, but rather that there are some universal rules that tend to apply to each technique.

Anyone who wants to learn how to research stocks should apply the following steps to their own process:

Start With Company Financials

Focus on key information, conduct qualitative research, decide if the company is right for you.

The first step in a fundamental analysis involves quantitative research; that is to say, investors need to dig into the financial data of a respective company. Fortunately for anyone who wants to learn how to research stocks, the U.S. Securities and Exchange Commission (SEC) requires public companies to disclose many of their financial documents on a regular basis. In doing so, the SEC is able to protect investors, maintain a fair market, and facilitate capital formation. At the same time, investors may use the financial statements to gain a better understanding of a company’s performance.

Not surprisingly, financial statements can reveal a lot about a company’s financial position. Most notably, financial statements can tell investors a number of important facts, not the least of which include:

how money is made

whether or not revenue is growing

the total value of assets held

how much debt the company currently has

which direction cash is flowing

Financial statements can tell investors a lot about a respective company. However, the information necessary to research stocks isn’t relegated to a single financial statement; it is spread across several different statements. As a result, investors learning how to research stocks will also need to learn how to find and read the following financial statements:

Form 10-K: Filed once a year with the SEC, the 10-K is a collection of financial statements that have been audited by an independent third party. The 10-K is comprehensive and extensive and contains just about everything an investor learning how to research stocks needs. This particular form holds the company’s income statement, balance sheet, and cash flow statement. The 10-K reveals how the business makes money, the risks it is exposed to, revenues and expenses, and insights offered by management.

Form 10-Q: Though not as popular as the 10-K for stocks research, the 10-Q is a quarterly report of unaudited financials. While less comprehensive, the 10-Q can still reveal a lot of information about a company and teach investors how to research stocks. A lot of the information found in a 10-Q can be found in a 10-K but on a quarterly basis.

Each of these reports can be found relatively easily. In fact, the first place to look for each report is on the company’s own website. Most publicly traded companies have dedicated “investor relations” pages to divulge the necessary financial information. In order to research stocks and their financials, simply navigate to the company’s investor relations page and look for the most recent report. While each website has their own way of doing things, the financial information most investors are after is usually under a “news,” “press releases,” or “financials” tab.

In addition to the company’s own website, financial statements may also be found on the SEC’s website. More specifically, the SEC’s Electronic Data Gathering, Analysis and Retrieval (EDGAR) website offers investors a searchable database to research stocks.

Last, but certainly not least, are the stock research tools provided by today’s many brokerages. Most online brokerages provide all of the financial information investors need to research stocks. The information available will vary from brokerage to brokerage, but is primarily found on each equity’s summary page.

Financial statements can be dry to read and intimidating for anyone trying to learn how to research stocks. Nonetheless, they are full of valuable information for those willing to put in the time. In order to make reading financial statements a little easier, investors should focus on the most important metrics outlined in the next section.

Financial statements are full of numbers anyone learning how to research stocks may not understand. At the very least, the quantitative data required by the SEC is comprehensive and intimidating to anyone who doesn’t know what to look for. As a result, new investors should focus on the most important numbers. That’s not to say the rest of the reports should be ignored, but rather that new investors will probably get the most out of the following metrics:

Revenue: Often referred to as “the top line,” revenue is the first line item on the income statement and denotes the total amount of income generated by the company. Revenue may be broken down into two metrics: operating and non-operating revenue streams. Operating revenue is generated from the company’s core business. Non-operating revenue identifies money brought in from a one-time business activity.

Net Income: Net income is the last line item on the income statement and is also referred to as “the bottom line.” As its name suggests, net income represents the money a company has left over after operating expenses, taxes and other costs are subtracted from revenue.

Earnings Per Share: When investors divide earnings by the number of outstanding shares, they reveal the earnings per share metric. The earnings per share suggests how profitable a business is on a per-share basis. While far from a perfect metric, earnings per share does give investors a good way to compare two stocks with different totals of outstanding shares.

Price-To-Earnings Ratio: True to its name, the price-to-earnings ratio represents the ratio of a company’s share price to the company’s earnings per share. In doing so, investors may determine if a stock is overvalued or not.

Price-To-Earnings Growth Ratio: The price-to-earnings growth ratio isn’t typically on financial statements, but investors may calculate it using metrics found on reports. Investors will first need to divide the company’s share price by its EPS (earnings per share). Next, take the resulting number and divide it by the earnings per share growth rate. The resulting PEG ratio will give investors a better idea of the company’s future profitability relative to each share.

Price-To-Book Ratio: Otherwise known as the P/B ratio, the price-to-book ratio is a metric used to compare a stock’s current market value to its book value. A company’s book value is how much it is worth according to its balance sheet—less depreciation, amortization, and any other costs devaluing the assets. With the P/B ratio, investors may value a company’s equity relative to the assets it holds. For context, any company with a P/B ratio under one is generally considered a good value.

Debt-To-EBITDA Ratio: EBITDA is an acronym for earnings before interest, taxes, depreciation, and amortization. Therefore, the debt-to-EBITDA ratio gives investors an idea of how much income a company has to pay down debt before accounting for interest, taxes, depreciation, and amortization. In other words, this ratio tells investors how capable a company is at paying off its known debts.

With most of the financial information accounted for, investors should turn to a more qualitative process. Instead of looking at numbers and data, investors need to take a closer look at the business itself and how it operates. Getting down to the basics of the business can tell investors a lot about a company, and can be as simple as answering the following questions:

How does the business make money?: While it is usually obvious how a public company makes money, there are many exceptions. In fact, many up-and-coming tech companies aren’t even profitable at all. That said, it is important to not only know how a company makes money, but whether or not it is even profitable. Doing so will help analyze a stock at any cycle in the economy.

How big is the company’s moat?: Not unlike the moat found around a medieval castle, a stock’s moat helps protect the business. More commonly referred to as a competitive advantage, a moat is something that helps differentiate the business from its competitors. The wider the moat, the more likely a business is able to maintain or grow its competitive advantage over time.

How much experience does management have?: Management plays a pivotal role in the development and growth of a business. Great management is entirely capable of taking a company to the next level. Therefore, it is important to evaluate management’s experience and track record.

What are the potential risks?: When evaluating a stock for its potential, it is also important to look at the risks which pose a threat to future growth. If for nothing else, knowing what can hurt the stock is just as important as knowing what can help it. Understanding risk helps put things into perspective and prevents overallocation into a single equity.

What values does the company exercise?: When learning how to research stocks, investors should take a minute to evaluate the values each one exhibits. Values can play a big role in stock performance, and can even align with an individual investor’s own values. It is always important to invest in the stocks which support the future investors hope to see, so it is never a bad idea to invest in stocks that support your own values.

When learning how to research stocks, investors must also learn a little about themselves. In particular, it is always a good idea to make sure the company fits into an existing investment strategy. The strategy for investing is just as important as the stocks that make up a portfolio, if not more so. Therefore, investors need to make sure the stock is the right fit for them and their portfolio.

For starters, investors should prioritize stocks that complement their investment strategy. Those with long-term investing horizons will most likely favor growth stocks with a lot of potential upside. Younger investors, for example, tend to build portfolios out of stocks with more upside over the long run. It is worth noting, however, that growth stocks tend to expose investors to a little more risk. Typically, growth stocks are small, unproven companies with a lot of upside. That said, the unproven nature of growth stocks coincides with more risk, which is more acceptable for young investors with plenty of time to make up for any mistakes.

Those on the verge of retirement, however, may want to avoid growth stocks altogether. Shorter investing timelines don’t grant growth stocks the ability to compound over time and expose investors to more risk; something older investors can’t afford. As a result, those with fewer years to invest tend to focus on bluechip stocks with proven track records. The stable nature of bluechip companies limits upside, but can serve as a trustworthy source of income.

When all is said and done, there are countless inviting strategies. Still, not all stocks are created equal; some are inherently better for investment strategies than others. With that in mind, investors need to make sure the stocks they choose to invest in meet their unique needs.

Example Of Stock Research

Now that investors have a better idea of how to research stocks, it may be helpful to see the aforementioned information put to work. Let’s say, for example, there’s an investor who wants to start a position in the rapidly growing semiconductor industry. After careful deliberation, the investor has decided to choose one of two companies: Advanced Micro Devices, Inc. (NASDAQ: AMD ) and NVIDIA Corporation (NASDAQ: NVDA ). Both companies are industry leaders, but it is hard to tell how a company is doing based on price alone.

Upon a closer look at each company’s financials, investors will notice the following (figures as of August 4, 2022):

P/E Ratio: 38.65

P/S Ratio: 7.02

P/B Ratio: 3.05

P/E Ratio: 51.52

P/S Ratio: 16.51

P/B Ratio: 18.25

When examining the two stocks, investors will notice NVIDIA has a higher price-to-earnings (P/E) ratio than AMD. While a high or low ratio isn’t necessarily indicative of a good or bad valuation, most investors will want to see the P/E of a respective stock somewhere around the neighborhood of 20 to 25. Since both of these companies are well over the 20 to 25 threshold, you could argue each company’s share prices are overvalued, relative to the earnings per share. However, with a lower P/E ratio, AMD currently looks like a better value.

Next, investors will notice AMD’s 7.02 price-to-sales (P/S) ratio is lower than NVIDIA’s 16.51. With a price-to-sales ratio that is less than half of NVIDIA’s, investors in AMD’s stock are theoretically paying less for every dollar of the company’s sales. As a result, AMD looks like a better value than NVIDIA on a price-to-sales basis.

The price-to-book (P/B) ratio will help investors compare each semiconductor company’s current market value to its book value. Traditionally, the lower the book value, the more a company can expect in return if it sold all of its assets at current market prices. Since AMD’s P/B ratio is lower than its competitor, it’s safe to assume it is a better value.

Looking at only the financial metrics would tell investors that AMD is a better valuation at its current price. As such, AMD should have a better opportunity to grow its share price. However, the market prices equities on more than just financials. It is at this point investors must conduct their own qualitative analysis and cross-reference their findings with the company’s financials.

For instance, while AMD may represent more of a value, NVIDIA is arguably the industry leader. Jensen Huang, NVIDIA’s CEO, is nothing short of a visionary and one of the primary reasons the company is doing so well. That’s not to say Lisa Su (AMD’s CEO) isn’t a brilliant manager, but rather that other factors need to come into play.

When learning how to research stocks: there’s one key takeaway for investors: there is no perfect way to research a stock. Different investors choose different reasons to invest in a variety of stocks, all with justifiable reasoning. That said, the stock research tools outlined above can give investors a better idea of which stocks will help portfolios the most.

Understanding how to research stocks is of the utmost importance to any investor who has made the decision to invest in individual equities. However, it is important to note that even the best research may be compromised. In fact, there is no universal strategy to research stocks that isn’t inherently flawed. If for nothing else, the macroeconomic environment by which Wall Street operates is too unpredictable for anyone to feel confident in. As a result, the best thing investors can do is work with the information they are given to give themselves the best chance of realizing success.

Click the banner below to take a 90-minute online training class and get started learning how to invest in today’s real estate market!

FortuneBuilders is not registered as a securities broker-dealer or an investment adviser with the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority (“FINRA”), or any state securities regulatory authority. The information presented is not intended to be used as the sole basis of any investment decisions, nor should it be construed as advice designed to meet the investment needs of any particular investor. Nothing provided shall constitute financial, tax, legal, or accounting advice or individually tailored investment advice. This information is for educational purposes only is not meant to be a solicitation or recommendation to buy, sell, or hold any securities mentioned.

Starting And Growing A Real Estate Portfolio The Right Way

A guide to real estate financing, top 10 best stocks to buy now [updated december 2022], 10 best value stocks to buy in december 2022, it’s simple how to wholesale real estate step by step, how to write a foolproof real estate marketing plan.

How to Research Stocks: A Beginner’s Guide

MoneyTips Writer

Think of our writing team like your Yoda, with expert finance advice you can trust. MoneyTips explains concepts simply, without bells and whistles or formality, to help you live your best financial life.

Stocks, or equities, are shares of ownership in a company. Investing in the stock market by purchasing these shares can be a great way to grow your money for the future. 

But how much money you make – or lose – largely depends on the stocks you pick. So how do you know which stocks to invest in for long-term growth?

We’ll give step-by-step pointers on researching stocks like a wall street pro. We’ll also let you know what data to pay attention to and how to consider your risk tolerance and goals to guide your investment decisions. 

Then, even if you’ve never invested in the stock market, whether you have a small amount of money or a windfall, you can start researching stocks to add to your investment portfolio. 

Why Invest in Stocks?

People invest in stocks to make money, primarily by selling the stock if its value increases. But investors can also make money with stock dividends, which are a company’s earnings paid to shareholders. 

Historically, the stock market offers more significant growth potential than most other investment types. But “potential” is never a guarantee. There are substantial risks to investing in stocks. You could lose some or all of the money you invested in the stock market.

Invest for long-term growth

Because of the risk of investing in stocks; they tend to be best for long-term investing. Stock prices can rise and fall in a short amount of time. Having a longer investment timeline (at least five years), as opposed to shorter timelines, like a year, a few months, or even a day, helps to mitigate the risk of a stock’s short-term volatility (fluctuations in value).

How Can I Start Investing in Stocks?

Starting to invest in stocks is easy, in theory. All you need is some money to invest and a brokerage account, such as an online investing app or – if you’re investing for retirement – an account like a 401(k) or individual retirement account ( IRA ). 

However, investing is more than setting up an online stock trading account and throwing darts at a board to pick stocks. To find the right stocks to invest in, you’ll need to know your budget, risk tolerance, investment goals, and which stock data to consider.

Before you research the data, here are some clever things you can do to prepare to invest in stocks: 

Define your risk tolerance

Does the thought of losing money make you anxious? Or are you okay with losing the money you’re investing? Defining your risk tolerance – often described as either aggressive, moderate, or conservative – will help you choose stocks, so you stay within your investing comfort zone.

Make an investment budget

Along with defining your risk tolerance; you’ll want to establish your risk capacity, which is the amount of money you can reasonably afford to lose. 

This will help you figure out how much to invest and at what intervals. For instance, will you invest a lump-sum of $1,000 into a brokerage account once or contribute $100 biweekly from each paycheck, as you might with a 401(k)?

Establish a timeline and goals

Consider your investment goals and how long you have to accomplish them. You may have a goal of buying a house in 5 years or a 15-year plan of saving for a child’s education. Because plans can change during your life, it’s important to revisit them regularly to ensure they’re still appropriate. 

Open an investing account

You can choose to set up a brokerage account at an investment firm. Some banks and credit unions also offer investment services. 

You can start investing in stocks in minutes with an online brokerage account. Many of these online brokers feature “robo-advisors,” but some offer individual investment advice like a full-service investment firm. 

An IRA is another option if your investment goal is to save for retirement. 

How to Research Stocks in 4 Steps

Researching stocks is a way to predict a stock’s future performance and decide if it fits your investing needs.

There are two main types of stock research:

• Fundamental analysis: This uses a stock’s financial data. 
• Technical analysis: This uses patterns in the stock market and past stock prices.

For the most part, investors researching an individual stock tend to focus on fundamental analysis, which looks at a range of aspects of the company, the industry, and markets as a whole. 

This analysis will help you find stocks you’re interested in and rule out the stocks you don’t want.

Here are the steps to researching stocks: 

Step 1: Gather company financial documents

Publicly traded companies in the U.S. must make many of their financial documents public, according to the Securities and Exchange Commission (SEC). This makes it easier for investors to evaluate a company’s stock. 

The three main reports needed to research a company’s financial health are:

• Form 10-K: This annual form contains financial statements that outline valuable data for anyone researching stocks, including the company’s revenue, cash flow, assets, and liabilities. The 10-K is audited by a third party and can be accessed from the Electronic Data Gathering Analysis and Retrieval System (EDGAR) on the SEC’s website. You can search for the documents by company name, exchange ticker symbol, and other information.
• Form 10-Q: The 10-Q contains much of the same information as the 10-K, but it’s released quarterly, and the data is unaudited. This form can also be accessed using the EDGAR on the SEC’s website.
• Annual report: This document is often printed into a book with a letter from the CEO and highlights of the company’s activities. Although financial data in the annual report isn’t as comprehensive as the 10-K or 10-Q, it tends to be presented in an easy-to-understand format. 

The annual report is usually found on the company’s website.

Step 2: Narrow your focus (quantitative research)

Honing in on specific financial data (doing quantitative analysis) will help you evaluate a stock with more clarity. This data includes:

Which is the company’s total gross income. It’s usually described in two ways. Operating revenue is income the company brings in during day-to-day business activities. Non-operating revenue is income generated from a unique activity. 

You can use a company’s revenue to determine its worth, see if it’s growing, and compare the revenue to earnings and share price.

Net income (earnings)

Net income, or the “bottom line,” is a company’s income (or profit) after accounting for business expenses like payroll, taxes, and operating expenses. Strong earnings can be a good sign that the company itself is strong.

Earnings per share (EPS)

Dividing a company’s earnings by its outstanding number of shares will give you the EPS. This shows investors a company’s profitability per share. It’s often used to compare one stock to another. Generally, the higher the EPS, the better.

Price-to-earnings (P/E) ratio

By dividing a stock’s share price by a company’s earnings per share, you get the P/E ratio. With this number, an investor can evaluate a stock’s valuation – whether a stock might be a good value (low P/E ratio) or is overvalued (high P/E ratio). 

To judge whether a P/E ratio is low or high is somewhat arbitrary. But some investors consider a P/E ratio below 15 to be low and 20 or higher as high.

Price-to-book (P/B) ratio

The P/B ratio compares a stock’s market value with the book value on the balance sheet. Typically, investors look for a company’s P/B ratio to be less than 1.

Debt-to-EBITDA ratio

EBITDA stands for earnings before interest, taxes, depreciation, and amortization. The debt-to-EBITDA ratio tells investors how well the company pays off its debts. In general, the lower this number, the better. Some investors consider anything over 3 to be a red flag.

Return on equity (ROE) and return on assets (ROA)

Both of these metrics tell investors about a company’s profit. ROE shows how much profit the company generates from each dollar of shareholder equity. ROA shows a company’s profitability after assets and debt allocation. 

An ROE of around 15% – 20% is typically considered good. A strong ROA is generally considered 20% or higher, but some investors judge anything above 5% as acceptable.

Step 3: Conduct qualitative stock research

Qualitative research involves looking at a company’s non-quantifiable information, also known as soft data. Some questions qualitative analysis can answer about a company might include: 

• How does the business make money?
• How big/strong is the company’s competitive advantage (how wide is its “moat”)?
• How much experience does management have, and what is management’s track record?
• What can threaten the company’s growth? What are the potential risks?
• What are the company’s values?

Qualitative research is challenging to measure. But if you understand and can explain what a company sells, its products, business philosophy, and management, and think its growth prospects outweigh its risks, these are all positive signs.

Step 4: Decide if the stock is right for you

Now, go back to your tolerance and goals. The suitable investments for you will fit into your investment strategy.

You might consider a growth investment strategy if you’re young and have aggressive risk tolerance. You’ll probably want to focus on growth stocks that may expose you to more risk but potentially have a more considerable upside.

If you consider yourself a bargain shopper, you may want to adopt a value investment strategy. You might consider stocks you think have a higher intrinsic value than market value – this is, based on your analysis, you believe the stock is worth more than its current market price. 

You’ll want to avoid riskier investments if you have more conservative risk tolerance. One way to do this is to focus on blue-chip stocks (those from established companies with dependable returns and less risk) for your portfolio. 

Online stock screening tools

You can get help finding the right stocks to invest in by using online research tools. Some brokerage companies offer educational and evaluation tools on their websites for individual investors. And there are free stock screeners online that are easy to use.

Take Stock of The Company and Your Goals

Whatever your goals are, remember that diversification is key to investment success. Be sure you’re considering individual stocks as just one part of a diversified mix of investments, and know that there’s no one “best stock” to add to your portfolio. 

It’s always a good idea to seek the help of a financial professional for guidance in formulating a strategy that’s right for you. They can help you find the investments that are most likely to fulfill your goals.

Share Article

The Short Version

• With an online brokerage account, you can start investing in stocks in minutes
• To find the right stocks to invest in, you’ll need to know your budget, risk tolerance and investment goals as well as which stock data to pay attention to
• Investors researching an individual stock tend to focus on fundamental analysis, which looks at a range of aspects of the company as well as the industry and markets

On This Page Jump to Close

You should also check out….

• Main menu Stock Trading Apps
• Best Investment Apps
• Best Paper Trading Apps
• Best Penny Stock Apps
• Best Day Trading Apps
• Best Free Stock Apps
• Best Social Trading App
• Best AI Stock Trading App
• Best Forex Apps
• Best ETF Apps
• Best Commodity Apps
• Best Demo Trading App
• Best Copy Trading App
• Best Options Trading App
• Best CFD Trading App
• Best Stock Portfolio Trackers
• Best Stock Market Research & Analysis Software
• Best AI Stock Picking Services And Software
• Best Alternative Data Services for Stock Market Investors
• Best Investment Tools & Analysis Software
• Best Stock Trading Signals
• Best Stock Analysis Apps
• Best Stock Alerts Services
• Best Free Stock Screeners & Apps
• Best Stock Tips Services
• Main menu Crypto Trading Apps
• Best Bitcoin Trading App
• Best Bitcoin Wallet App
• Best Altcoin Apps
• Best NFT Apps
• Best Metaverse App
• Best Crypto Game App
• Best DeFi Apps
• Main menu Cryptocurrencies
• How To Buy Crypto With PayPal
• Best Crypto Presales
• Best Meme Coins
• Best Crypto to Buy
• Buy Wall Street Memes
• Buy LuckyBlock
• Lucky Block Price Prediction
• How To Buy Meme Kombat
• Meme Kombat Price Prediction
• How To Buy TG.Casino Token
• TG.Casino Token Price Prediction
• How To Buy Bitcoin Minetrix
• Bitcoin Minetrix Price Prediction
• How To Buy Bitcoin ETF Token
• Bitcoin ETF Token Price Prediction
• How To Buy Sponge V2 Token
• Sponge V2 Token Price Prediction
• How To Buy Smog Coin
• How To Buy Scotty The AI
• How To Buy Frog Wif Hat Token
• How To Buy Green Bitcoin
• Main menu Robot Trading Apps
• Quantum Prime Profit Review
• Immediate Connect Review
• Immediate Granimator Review
• Quantum Flash Review
• Bitindex Prime Review
• Bitcoin 360 Ai Review
• Biticodes Review
• PrimeXBT App Review
• BitVestment Review
• Qumas AI Review
• Bitsoft360 Review
• Bitcoin Sprint Review
• Main menu Trading App Reviews
• Robinhood App Review
• Robinhood Alternatives
• Moneybox App Review
• Revolut App Review
• eToro App Review
• IG App Review
• Stash App Review
• Trading 212 App Review
• Oanda App Review
• Vanguard App Review
• MooMoo Trading App Review
• Plus500 App Review
• Forex.com App Review
• FXCM App Review
• Capital.com App Review
• Webull App Review
• Hello Stake App Review
• Degiro App Review
• Freetrade App Review
• Fineco App Review
• TradeZero App Review
• Main menu Education
• What Is Scalping in Trading?
• What Is Insider Trading?
• What Are Blue Chip Stocks?
• What is Day Trading?
• Why Do Stocks Go Up and Down?
• What is P/E in stocks?
• What Is a Bull Market in Stocks?
• How to Buy Penny Stocks
• What is Yield in Stocks?
• What Happens to Stocks in a Recession?
• How to Research Stocks
• Why do Stocks Split?
• What Are Small Cap Stocks?
• How to Invest in Dividend Stocks
• What is Market Cap in Stocks?
• What Are Futures in Stocks?
• What is Float in Stocks?
• What are Options in Stocks?
• What is EPS in Stocks?
• What is a Limit Order in Stocks?
• How Do Stocks Work?
• What Are Meme Stocks?
• What is a Put in Stocks?
• What Is Beta in Stocks?
• What is Fibonacci retracement?
• What is the MACD Indicator?
• What are Moving Averages in Trading?
• Supertrend Indicator Explained
• Candlesticks Explained
• Stock Market Calculator

How to Research Stocks – A Step-by-Step Guide

eToro: Overall Best Stock App with 0% Commission

You must learn how to research stocks properly if you want longevity as a trader or investor. The approach might differ depending on your long-term investment goals. However, primary considerations like vital financial ratios, chart patterns, trends, and management analysis are foundational.

This guide will cover the stock market for beginners and how you can research it for informed trading decisions. You’ll also learn what to look for when buying stocks to avoid scams and losing trades. With that in mind, let’s begin with learning the stock market metrics.

Significance of Informed Decision-Making

Role of research in mitigating investment risks, long-term benefits of diligent stock research, fundamental analysis vs. technical analysis, combining both approaches for holistic insights, quantitative vs. qualitative research in stock analysis, leadership and management effectiveness, evaluating board structure and independence, examining executive compensation practices, key information to gather before investing, customizing checklists based on investment objectives, regularly updating and revising research checklists, recap of key research strategies, importance of stock research.

One brilliant thing about today’s world is its accessibility to information . You don’t need to go to the library or buy newspapers to capture information about the stock market. Your smartphone is powerful enough to bring you everything you need to know before trading.

We recommend adding alternative data services to your research tools. Of course, news platforms are also crucial to stock research.

You can rely on expert trading opinions and follow trends. Most trading platforms allow experts to post their trades for copy trading, while others include a social chat feature. Notwithstanding, you’ll miss out on developing a trading strategy that works with or without expert opinions.

We’d rather have you research a stock before trading than rely solely on AI or experts. The latter can fix you up for a quick trade. However, you must know how to value a stock to settle in for the long run.

You can get away with making mistakes in virtual trades. eToro offers a $100,000 virtual trading account that can accommodate your mistakes until you master how to research stocks. Nonetheless, real-world trading decisions will cost you real money.

Informed decision-making relies on facts, not emotions or opinions . It doesn’t matter whether you feel a stock’s value will rise or not. What matters are the facts that support your feelings or opinions.

Informed decision-making doesn’t guarantee successful trades , but you’ll dodge several sinkholes. This approach prevents you from trading on impulse.

We recommend trading with an amount you don’t mind losing . Even so, you cannot afford to lose it when research could’ve helped you avoid the wrong decisions.

The significance of informed decision-making goes beyond one trade. You’ll develop a trading pattern and strategy that’ll keep you afloat in the long run. Unnecessary losses can quickly drain your account, leaving you nothing to trade with.

Stock trading comes with risks , even for seasoned traders. The same applies to other markets like commodities, metals, cryptocurrency, forex, indices, ETFs, etc. Hence, traders try to eliminate as much risk as possible, reducing it to a bearable level.

Investing research time in the stock market mitigates investment risks . For example, you’ll see if a company has a looming scandal that can destroy its stocks. You wouldn’t mind looking elsewhere after discovering such news.

Another example is reviewing technical indicators like the MACD indicator and oscillators. These tools can help you identify swing points in a stock’s price movement. We are certain you’ll know when to enter and exit the market with such details.

You’ll easily identify large and small-cap stocks with adequate research. These have different risk levels for investments.

Research identifies risks that price chart overviews might not indicate . Like the example above, a stock might be enjoying a bull run when setting up for a sideways and bear market.

Consider research like a magnifying glass. We’ll show you how to know which stocks to buy and give you the research approach for further use.

Your decision-making will improve as you rely more on facts than on impulse . For example, a market might be in a bear run while the trading volume steadily increases. That means the sentiment is positive, and a price swing is about to occur, taking the stock upwards.

The following are the long-term benefits of diligent stock research:

• Higher returns from successful trades
• Improved financial literacy occurs as you grasp concepts like valuation metrics, analytical methods, technical graphs, etc.
• Long-term wealth creation through investing in high-quality stocks
• Improved confidence in your trades
• Minimized risk
• Enhanced financial well-being

You’ll have more money to invest and continue earning from the market. Research does not only cover learning how to know what stocks to buy. It also covers dividend stocks , a crucial approach to long-term income.

Trade Stocks Now

Your capital is at risk

Different Approaches to Stock Research

There are different approaches to learning about the stock market, with distinct advantages. Some people prefer numbers through charts and technical indicators . Others prefer qualitative information like news reports, company announcements, SEC filings, government regulations, etc.

The table below shows the difference between fundamental and technical analysis:

You can see how fundamental analysis complements technical analysis from the table above. Learning the two approaches will take time. However, you’ll be glad to know them, as they are the fundamentals of learning how to research stocks.

Being a long-term investor does not mean throwing away technical analysis. You won’t focus on short-term price movements. Instead, you will focus on the overall picture months and years of trading data revealed.

Long-term investors still use technical indicators like moving averages to smooth steep price swings. Similarly, short-term investors can benefit from assessing an asset’s quality and comparing it with market trends. Alternative data like news and economic indicators (e.g., the inflation rate) can add context to historical price data and trading volume.

A stock split might allow new investors to buy shares at a lower price, but that shouldn’t be your sole influence. We recommend combining fundamental analysis and technical analysis for holistic insights . You’ll take more time to identify trading opportunities, but the effort is worth it.

Most trading apps, especially stock market research and investment software, have tools for both analyses. Some offer virtual trading accounts to get you started toward becoming a seasoned stock market analyst.

You cannot escape these analyses unless you trade for leisure. We’ll show you how to value a stock with fundamental and technical research.

The fundamental difference between quantitative and qualitative research lies in numbers and words. Quantitative research deals with numbers and statistics. That is where you’ll find terms like standard deviation, percentiles, price-to-earnings ratios, beta in stocks , etc.

Quantitative research relies on data-driven techniques to identify market trends and trading signals. Most technical tools are built on quantitative research algorithms.

Qualitative research brings in a subjective analysis of non-quantifiable assets or data . For example, you can review employers’ appraisals to gauge a company’s work culture.

Reading the news, events, product launches, mergers, acquisitions, new regulations, etc., make up part of qualitative research. The idea is to draw an inference from the data.

Let’s see a practical example. Company A has a disruptive product on the market. However, the CEO is a former gambler with several debt cases.

The CEO’s background immediately raises red flags about the company. You’ll likely refrain from investing because the CEO’s track record is not stellar. Compare that to a CEO who has headed successful companies, and you’ll see your perception change .

Qualitative research requires a few mathematical tools . You can stay on your sofa and read about any aspect of a company as needed. A few hours will leave you with enough information to appraise the company as credible or suspicious.

Some alternative data services attempt to collate qualitative data in one spot . They can help narrow your research instead of sifting through terabytes of data on the internet.

Management and Corporate Governance Analysis

This section is qualitative, as you don’t need complex mathematical skills to evaluate it. You can gain information through the company’s governing and corporate structure. That goes beyond the management structure most companies display on their websites.

Dig deeper into the official books. For transparency, most companies allow the public to see their governance structure.

The things you can do at this stage include the following:

The best approach to assessing leadership and management effectiveness comes from individual strengths . Review the leaders’ backgrounds, from the CEOs to other management staff. You’ll discover that some CEOs have significant success stories while others are in for the first time.

Progress from individual strengths to corporate decisions . Review major decisions the company has made in the past. These include partnership deals, advertorials, mergers, product investments, etc. The more success stories you have, the more effective the company’s leaders are.

Evaluate milestones and compare them with the company’s vision . Fulfilling milestones points to the leadership’s commitment to achieving its goals. That can boost investor confidence to buy the company’s stocks.

An independent board can make better objective decisions because they do not materially connect with the company. Former directors and company executives should not be part of the board. The more independent a board is, the more likely it is to make decisions in the company’s best interest .

Review each board member and their ties to the company . That is the approach to evaluating the board’s independence.

Executive compensation should be transparent. Cunning or missing information in this regard is a red flag.

Executives should receive good compensation. However, their compensation shouldn’t come at the expense of the company.

Building a Research Checklist

Here are a few details you should gather before investing:

• Your investment goals
• Your risk tolerance
• The company’s financial statements
• Market capitalization
• Price-to-earnings ratios
• Financial ratios
• Leadership and management structure
• Major news and events

The list in the previous section is unfixed. We recommend customizing it based on your investment objectives. For example, dividend yields will come if you want to be a long-term investor.

Determine if you are investing for the short- or long-term. Then, determine how much you want to invest.

Revisit your checklists and add new details as the market changes. For example, you might add the analysis from reputable platforms to your checklists. The key is recognizing a crucial detail and updating your checklists.

Remember to use the following research strategies:

• Begin with fundamental analysis
• Analyze qualitative data, including financial statements, ratios, and leadership/management structure
• Identify the stocks and view their price charts
• Add indicators and oscillators to identify trends
• Review news and other events affecting the company

Learning how to research stocks properly will spare you the pitfalls of impulse trading. You’ll make better-informed decisions after reviewing multiple company and trading data sets . Also, combine fundamental and technical analysis for holistic insights.

Practice with the eToro virtual trading account.

Visit eToro Now

How do you research a stock before you buy it?

How do i research my own stocks, what are the best stocks for beginners, what stock pays the highest dividend, what's the safest stock to invest in.

• https://www.investopedia.com/terms/s/sec.asp
• https://rpc.cfainstitute.org/en/policy/positions/board-independence
• https://edition.cnn.com/markets/fear-and-greed
• https://www.nasdaq.com/market-activity
• https://finance.yahoo.com/news/7-stocks-rattled-corporate-scandals-154313784.html

Jeremiah Awogboro

Jeremiah Awogboro is an experienced content writer with over 8 years of experience. He has a qualified MBChB degree and a keen interest in the stock market and the finance industry. His background in the industry has provided him with valuable experience in this field. Awogboro is dedicated to assisting and reaching out to as many people as possible through his writing. In his spare time, he enjoys music, football, traveling, and reading.

stockapps.com  has no intention that any of the information it provides is used for illegal purposes. It is your own personal responsibility to make sure that all age and other relevant requirements are adhered to before registering with a trading, investing or betting operator. Contracts for Difference (“CFDs”) are leveraged products and carry a significant risk of loss to your capital. Please ensure you fully understand the risks and seek independent advice.By continuing to use this website you agree to our terms and conditions and privacy policy.

Crypto promotions on this site do not comply with the UK Financial Promotions Regime and is not intended for UK consumers.

© stockapps.com All Rights Reserved 2024

5 ways to research stocks like the pros

Advertiser disclosure.

We are an independent, advertising-supported comparison service. Our goal is to help you make smarter financial decisions by providing you with interactive tools and financial calculators, publishing original and objective content, by enabling you to conduct research and compare information for free - so that you can make financial decisions with confidence.

Our articles, interactive tools, and hypothetical examples contain information to help you conduct research but are not intended to serve as investment advice, and we cannot guarantee that this information is applicable or accurate to your personal circumstances. Any estimates based on past performance do not a guarantee future performance, and prior to making any investment you should discuss your specific investment needs or seek advice from a qualified professional.

How We Make Money

The offers that appear on this site are from companies that compensate us. This compensation may impact how and where products appear on this site, including, for example, the order in which they may appear within the listing categories, except where prohibited by law for our mortgage, home equity and other home lending products. But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you.

Editorial disclosure

All reviews are prepared by our staff. Opinions expressed are solely those of the reviewer and have not been reviewed or approved by any advertiser. The information, including any rates, terms and fees associated with financial products, presented in the review is accurate as of the date of publication.

• Share this article on Facebook Facebook
• Share this article on Twitter Twitter
• Share this article on LinkedIn Linkedin
• Share this article via email Email

At Bankrate, we take the accuracy of our content seriously.

“Expert verified” means that our Financial Review Board thoroughly evaluated the article for accuracy and clarity. The Review Board comprises a panel of financial experts whose objective is to ensure that our content is always objective and balanced.

Their reviews hold us accountable for publishing high-quality and trustworthy content.

• • Investing
• • Wealth management
• Connect with James Royal, Ph.D. on Twitter Twitter
• Connect with James Royal, Ph.D. on LinkedIn Linkedin
• Get in contact with James Royal, Ph.D. via Email Email
• Connect with Brian Beers on Twitter Twitter
• Connect with Brian Beers on LinkedIn Linkedin

The Bankrate promise

At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict editorial integrity , this post may contain references to products from our partners. Here's an explanation for how we make money .

Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next.

Bankrate follows a strict editorial policy , so you can trust that we’re putting your interests first. All of our content is authored by highly qualified professionals and edited by subject matter experts , who ensure everything we publish is objective, accurate and trustworthy.

Our investing reporters and editors focus on the points consumers care about most — how to get started, the best brokers, types of investment accounts, how to choose investments and more — so you can feel confident when investing your money.

The investment information provided in this table is for informational and general educational purposes only and should not be construed as investment or financial advice. Bankrate does not offer advisory or brokerage services, nor does it provide individualized recommendations or personalized investment advice. Investment decisions should be based on an evaluation of your own personal financial situation, needs, risk tolerance and investment objectives. Investing involves risk including the potential loss of principal.

Editorial integrity

Bankrate follows a strict editorial policy , so you can trust that we’re putting your interests first. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions.

Key Principles

We value your trust. Our mission is to provide readers with accurate and unbiased information, and we have editorial standards in place to ensure that happens. Our editors and reporters thoroughly fact-check editorial content to ensure the information you’re reading is accurate. We maintain a firewall between our advertisers and our editorial team. Our editorial team does not receive direct compensation from our advertisers.

Editorial Independence

Bankrate’s editorial team writes on behalf of YOU – the reader. Our goal is to give you the best advice to help you make smart personal finance decisions. We follow strict guidelines to ensure that our editorial content is not influenced by advertisers. Our editorial team receives no direct compensation from advertisers, and our content is thoroughly fact-checked to ensure accuracy. So, whether you’re reading an article or a review, you can trust that you’re getting credible and dependable information.

How we make money

You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey.

Bankrate follows a strict editorial policy , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers.

We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money.

Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories, except where prohibited by law for our mortgage, home equity and other home lending products. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service.

Knowledge is power on Wall Street, and investing professionals have the reputation of being the most knowledgeable. But if you’re not a pro? Well, individual investors can still take advantage of many of the pros’ top techniques and turn some of their own knowledge into real investing success.

Individual investors have many advantages over the big institutional investors – especially the ability to invest with a long-term mentality and to buy out-of-the-way hidden gems. But they can also leverage information to identify some potentially high-flying stocks, too.

Here are a few of the best ways for individual investors to research stocks and get a leg up on their professional counterparts, as well as one way they can keep more of those gains.

How to research stocks like a pro

Here are five techniques that pros use to figure out what’s really going on in the market. Often these methods require a little more hustle than just reading the numbers on a screen or balance sheet, but you can also find out more that way than you could otherwise.

1. Use a stock screener

A stock screener is a great place to begin for investors on the hunt for new ideas. With a good stock screener, you can find stocks that are hitting 52-week lows, if you’re a value investor , or new highs, if you’re looking for momentum stocks that could continue their trend.

You can pair this information with other financial details that are available in the screener, such as a company’s revenue growth, profit margins, debt and many more. You’ll want to look for a high-quality screener so that you can get highly granular – and fully up to date – information.

You can find stock screeners at some of the top brokers , but you may want to hunt around for one that fits your exact needs and process best.

2. Talk to management teams

It may seem like the management teams are off-limits to individual investors, but not always. Sure, Meta Platforms CEO Mark Zuckerberg is not likely to take your call, but you have a real chance to ask questions at smaller firms, where execs will speak with current or future investors.

You’ll want to have pertinent questions lined up that show you know the business, and it can be a moment to ask insiders the finer points about the business. Even if you can’t get on the phone with the top brass, you can access a public company’s investor relations department. IR, as it’s known, can give you financial details or perspective on a press release, among other things.

It can also be helpful to ask a management team which other companies they respect most in the industry and why. This line of questioning can give you a good perspective on which rivals are worth watching – and they may even be worth investing in, too.

3. Do your own first-hand research

Getting out from behind the desk can be a great way to find out what’s actually going on before it breaks big. That’s classic advice from investing legend Peter Lynch , who recommends watching for new trends emerging with friends, whether it’s a new product or service.

Have you heard about a great new restaurant in the area? Check it out yourself and see what you like and whether its operation is running smoothly. Your neighbor likes a new tech gadget? See for yourself what it’s all about – and then assess if the company is worth an investment. (Are you a beginning investor? Here’s how to invest in stocks .)

This way is great for finding a hot new consumer brand, especially in the restaurant or retail spaces. Food fans could easily have picked up future high-flyers such as Chipotle and Panera before they became big household names. Even if investors didn’t get in at the bottom, these restaurants had years of attractive growth remaining in them after they were “discovered.”

4. Run your own channel checks

Especially for consumer or retail brands, you can do some of what Wall Street analysts call “channel checks.” A channel check is a fancy name for actually seeing what amount of product is moving through the system. A channel check can give you valuable information about what’s happening now before it shows up in the reported financial statements in three or six months.

For the pros, a channel check might involve calling up suppliers and customers of a target investment and seeing how much business the company is doing. In the case of individual investors, you can do much of the same with consumer brands, asking questions such as:

• Is that new product getting shelf space at your local grocery store?
• Is the product getting more space over time or less?
• Is the parking lot at that hot new chain restaurant or retail shop getting even more crowded?
• Or maybe the restaurant is getting less crowded or getting poor reviews?

You can run your own channel checks and see trends that might not show up in the results yet.

5. Subscribe to a newsletter

An investing newsletter is a great resource for individual investors, and it’s a technique that pro investors use as well, though the two kinds of newsletters typically focus on much different analysis. Still, a good newsletter can help individual investors find and evaluate good investment opportunities, and give them a wider perspective, since the market is so large.

It may seem like Wall Street investors are omniscient, but they outsource a lot of research to third parties. That’s exactly what individuals can do, but they may have an additional advantage, because they can invest in small, high-growth businesses that the big investors can’t touch. Plus, you may have the added advantage of bouncing good stock ideas off the newsletter pros.

Look for a reputable newsletter company with a long track record and a history of treating subscribers well. In some cases, you can find good newsletters for a few hundred dollars a year.

How to really let your money compound

While Wall Street has a reputation for being knowledgeable, success is not all about having the most info. The best investors really know how to minimize taxes and keep more of their money. So you’ve researched and found a great stock – here’s how to keep your gains compounding.

You may have found an undervalued stock that should go up to fair value and then you’ll sell. Or you may hunt for compounders, stocks that can grow for years, even decades. Think of PayPal, Amazon , or Starbucks, for example. It’s a classic dilemma between growth and value investing .

But whether you’re a value or growth investor, it’s important to realize that if you sell a winning investment in a taxable account, you’ll be liable for taxable gains ( at either the short- or long-term rates ).

Instead, by not selling, you’ll defer any taxes, meaning that the wealth remains yours. But not only do you avoid the taxes, you’ll be able to compound on the full pre-tax amount each year. To be clear, you will always still need to watch out if you owe taxes or not, but by allowing the investment to compound, you give yourself a better chance for the investment to grow beyond what it would have been had you cashed out earlier.

For example, imagine you invested $10,000 and gained 20 percent annually but sold right at the end of the year, incurring a tax rate of 20 percent. In five years you’d turn $10,000 into $21,000, and average about 16 percent annualized gains, since the government took its cut each year.

But what if you held your stock during that whole period? You’d compound the whole amount at 20 percent annually, turning $10,000 into just over $24,883. Even if you decided to sell at that point, you’d still realize an after-tax amount of about $21,906 – more than in the first scenario.

The difference? You’ve compounded further gains on top of the gains you had to pay taxes on in the first scenario. In effect, by not selling your stock, you’re forcing the government to defer its taxes and to give you the ability to keep compounding on the full, pre-tax amount.

That’s how legendary investors compound their gains when it makes sense. It’s not just a question of having the best research but also using it the best, in this case by minimizing taxes.

Bottom line

While it’s easy to lament that Wall Street pros have huge advantages over individual investors, even the little guys have ways to use some of the pros’ techniques. And in some cases, individual investors even have advantages that large investors can never take advantage of.

Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.

Related Articles

7 proven strategies to identify potential breakout stocks and boost your investment portfolio

5 secrets to successful dividend investing

5 tips to find safer stocks to invest in

4 ways to tell if a stock is undervalued

• Search Search Please fill out this field.

Stock Analysis Is a Process

Best to start where you are, what to analyze, the bottom line.

• Fundamental Analysis

How to Become Your Own Stock Analyst

Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more. Her expertise is in personal finance and investing, and real estate.

Nobody asks you to become your own doctor or your own lawyer, so why should anybody ask you to become your own stock analyst? Some people like to take up cooking simply because they enjoy doing it. Similarly, there are people like Warren Buffett who enjoy the process of making investments.

Therefore, if you are an investor who likes to be self-reliant, then you should consider becoming your own stock analyst. With a big question mark hanging over some analysts about their credibility, it is always better to learn the ropes yourself. Read on to find out how you too can think like an analyst, even while sitting at home.

Key Takeaways

• Wall Street often relies on analysts' estimates based on corporate financial data to recommend stocks and determine their target prices.
• Individual investors, too, can utilize the same type of fundamental analysis to identify potential undervalued stocks and set price targets.
• Here, we go over some of the basics for researching stocks and starting to conduct your own analysis.

It doesn't matter whether you are an investor looking for growth or value, the first step in thinking like an analyst is to develop a probing mind. You need to find out what to buy or sell at what price. Analysts usually focus on one particular industry or sector. Within that particular sector, they focus on select companies. An analyst's aim is to deeply probe the affairs of the companies on their list. They do this by analyzing the financial statements and all other available information about the company.

To cross-check the facts, analysts also probe the affairs of a company's suppliers, customers, and competitors. Some analysts also visit the company and interact with its management in order to gain a first-hand understanding of the workings of the company. Gradually, professional analysts connect all the dots to get the full picture.

Before making any investment, you should do your own research. It is always better to research several stocks in the same industry, so you have a comparative analysis. Access to information isn't usually an issue. The biggest constraint in becoming your own stock analyst is time. Retail investors who have many other things to do may not be able to devote as much time as professional security analysts . However, you can surely take up just one or two firms, in the beginning, to test how well you can analyze them. That would help you in understanding the process. With more experience and time, you can think of putting more stocks under your lens.

Looking over analyst reports is the best way to start your own analysis. That way, you save a lot of time by cutting short preliminary work. You don't have to blindly follow sell-or-buy recommendations that analysts make, but you can read their research reports to get a quick overview of the company, including its strengths and weaknesses, main competitors, industry outlook, and future prospects. Analysts' reports are loaded with information, and reading reports by different analysts simultaneously would help you identify the common thread. Opinions may differ, but basic facts in all reports are common.

Furthermore, you can take a closer look at the earnings forecasts of different analysts, which ultimately determine their buy or sell recommendations. Different analysts may set different target prices for the same stock. Always look for the reasons while reading analysts' reports. What would have been your opinion about the present stock given the same information? No clue? Then move on to the next step.

To arrive at your own reliable conclusion about a stock, you need to understand the various steps involved in stock analysis . Some analysts follow a top-down strategy , starting with an industry and then locating a winning company, while others follow a bottom-up approach, starting with a particular company and then learning about the outlook of the industry.

You can make your own order, but the entire process must flow smoothly. Any process of analyzing a stock would involve the following steps.

Industry Analysis

There are publicly available sources of information for almost any industry. Often, the annual report of a company itself gives a good enough overview of the industry, along with its future growth outlook. Annual reports also tell us about the major and minor competitors in a particular industry. Simultaneously reading the annual reports of two or three companies should give a clearer picture.

You can also subscribe to trade magazines and websites that cater to a particular industry to monitor the latest industry happenings.

Business Model Analysis

You should focus on a company's strengths and weaknesses. There can be a strong company in a weak industry and a weak company in a strong industry. The strengths of a company are often reflected in things such as its unique brand identity , products, customers, and suppliers. You can learn about a company's business model from its annual report, trade magazines, and websites.

Financial Strength

Whether you like it or not, understanding the financial strength of a company is the most crucial step in analyzing a stock. Without understanding financials, you cannot actually think like an analyst. You should be able to understand a company's balance sheet , income statement , and cash flow statements .

Often, numbers lying in the financial statements speak louder than the glossy words of an annual report. If you're not comfortable with numbers, and you want to analyze stocks, there's no time like the present to begin learning and getting comfortable with them.

Management Quality

Management quality is also a critical factor for a stock analyst. It is often said that there are no good or bad companies, only good or bad managers. Key executives are responsible for the future of the company. You can assess company management and board quality by doing some research on the Internet. There is a plethora of information out there about every public company.

Growth Analysis

Stock prices follow earnings, so in order to know whether a stock price will be moving up or down in the future, you need to know where future earnings are heading. Unfortunately, there is no quick formula that can tell you what to expect for future earnings. Analysts make their own estimates by analyzing past figures of sales growth and profit margins , along with profitability trends in that particular industry.

It's basically connecting what has happened in the past to what's expected to happen in the future. Making accurate enough earnings forecasts is the ultimate test of your stock analysis capabilities because it's a good indication of how well you understand those industries and companies.

Once you understand future earnings, the next step is to know about the worth of a company. What should be the worth of your company's stock? Analysts need to find out how much the current market price of the stock is justified in comparison to the company's value.

There is no "correct value," and different analysts use different parameters. Value investors look at intrinsic worth whereas growth investors look at earning potential . A company selling at a higher P/E ratio must grow at a higher price to justify its current price for growth investors.

Target Price

The final step is to set a target price . Once you understand the different ways to predict future earnings, you can calculate a high and low target price by multiplying estimated earnings per share (EPS) with the estimated high and low P/E Ratio.

The high and low target price is the price band within which the future stock price is likely to move in response to the expected future earnings. Once you know the target price, you can very well use it to reach your destination.

What Do Stock Analysts Do?

Wall Street stock analysts look deeply at a company's financial reports and announcements to conduct fundamental analysis . This is done to come up with a presumed fair value or price target and then to issue a recommendation to investors accordingly (e.g., buy or hold recommendations).

What Are Some Bottom-Up Tools for Stock Analysis?

Bottom-up analysis begins with a company's financial statements such as the balance sheet and income statement. From there, various ratios can be computed that reveal a firm's current and expected financial position. These ratios include, among several others, the debt-to-equity (D/E) ratio, the quick ratio , inventory turnover , and various price multiples .

What Should I Do If a Stock Rises Above Its Target Price?

If you are confident in your original analysis, a security should be sold for a profit once it reaches or exceeds its price target. You may want to first see if anything fundamental has changed that might raise the current price target, but otherwise use the proceeds from your sale to fund a new investment opportunity.

The ultimate goal of every investor is to make a profit, however, not every investor or analyst is good at it. Never blindly accept what stock analysts have to say and always do your own research. Not everybody can be an investing expert, but you can always improve your analytical skills when it comes to stocks.

Zurek, Martin, and Lars Heinrich. "Bottom-up versus top-down factor investing: an alpha forecasting perspective."  Journal of Asset Management, vol. 22, no. 1, 2021, Pages 11-29.

Financial Accounting Standards Board. " Comparability in International Accounting Standards—A Brief History ."

FINRA. " Evaluating Stocks ."

FINRA. " Six Financial Performance Metrics Every Investor Should Know ."

• Valuing a Company: Business Valuation Defined With 6 Methods 1 of 37
• What Is Valuation? 2 of 37
• Valuation Analysis: Meaning, Examples and Use Cases 3 of 37
• Financial Statements: List of Types and How to Read Them 4 of 37
• Balance Sheet: Explanation, Components, and Examples 5 of 37
• Cash Flow Statement: How to Read and Understand It 6 of 37
• 6 Basic Financial Ratios and What They Reveal 7 of 37
• 5 Must-Have Metrics for Value Investors 8 of 37
• Earnings Per Share (EPS): What It Means and How to Calculate It 9 of 37
• P/E Ratio Definition: Price-to-Earnings Ratio Formula and Examples 10 of 37
• Price-to-Book (PB) Ratio: Meaning, Formula, and Example 11 of 37
• Price/Earnings-to-Growth (PEG) Ratio: What It Is and the Formula 12 of 37
• Fundamental Analysis: Principles, Types, and How to Use It 13 of 37
• Absolute Value: Definition, Calculation Methods, Example 14 of 37
• Relative Valuation Model: Definition, Steps, and Types of Models 15 of 37
• Intrinsic Value of a Stock: What It Is and Formulas to Calculate It 16 of 37
• Intrinsic Value vs. Current Market Value: What's the Difference? 17 of 37
• The Comparables Approach to Equity Valuation 18 of 37
• The 4 Basic Elements of Stock Value 19 of 37
• How to Become Your Own Stock Analyst 20 of 37
• Due Diligence in 10 Easy Steps 21 of 37
• Determining the Value of a Preferred Stock 22 of 37
• Qualitative Analysis 23 of 37
• How to Choose the Best Stock Valuation Method 24 of 37
• Bottom-Up Investing: Definition, Example, Vs. Top-Down 25 of 37
• Financial Ratio Analysis: Definition, Types, Examples, and How to Use 26 of 37
• What Book Value Means to Investors 27 of 37
• Liquidation Value: Definition, What's Excluded, and Example 28 of 37
• Market Capitalization: What It Means for Investors 29 of 37
• Discounted Cash Flow (DCF) Explained With Formula and Examples 30 of 37
• Enterprise Value (EV) Formula and What It Means 31 of 37
• How to Use Enterprise Value to Compare Companies 32 of 37
• How to Analyze Corporate Profit Margins 33 of 37
• Return on Equity (ROE) Calculation and What It Means 34 of 37
• Decoding DuPont Analysis 35 of 37
• How to Value Private Companies 36 of 37
• Valuing Startup Ventures 37 of 37

• Terms of Service
• Editorial Policy
• Privacy Policy
• Your Privacy Choices

• Login Sign Up

English English (Global)

English English (EU)

English English (UK)

English English (AU)

English English (ZA)

English English (St. Vincent)

Deutsch German

Español Spanish (Latam)

Español Spanish (Spain)

Français French

Dansk Danish

Italiano Italian

Nederlands Dutch

العربية Arabic

Svenka Swedish

Tiếng việt Vietnamese

Bahasa Melayu Malay

ภาษาไทย Thai

繁體中文 Traditional Chinese

简体中文 Simplified Chinese

Tagalog Tagalog

தமிழ் Tamil

हिन्दी Hindi

Português Portuguese

Bahasa Indonesia Indonesian

Commodities

Web Platform

Social Trading

CFD Trading Calculator

Forex Margin Calculator

Commodities Profit Calculator

Forex Profit Calculator

Economic Calendar

CFD Trading

CFD Asset List

Trading Conditions

Trading Hours

Expiration Dates

Upcoming Trading Holidays

Weekly Expiration Rollover

Depth of Market

Education Centre

Trading Basics

Video library

Trader's clinic

• Promo marketsClub Welcome Bonus Loyal Bonus Referral Bonus
• Partnership Affiliation IB

Why markets.com

Global Offering

Help Centre

Contact Support

Safety Online

Cookie Disclosure

We use cookies to do things like offer live chat support and show you content we think you’ll be interested in. If you’re happy with the use of cookies by markets.com, click accept.

Tuesday Dec 12 2023 06:16

How to apply proper research on Stocks

As an investor, conducting thorough research is the key to making informed decisions about which stocks to buy and sell. You need to develop a systematic approach to evaluating stocks to determine their potential and risks.

Some areas you should focus your research on include the company's financials, industry trends, competitive position, and growth opportunities.

By gaining a holistic understanding of a stock through diligent research, you can make strategic investment decisions and build a portfolio poised for long-term success.

Understanding company fundamentals

To research stocks effectively, you must analyze a company's fundamentals. This includes examining their financial statements and key metrics to determine the overall health and potential of the business.

Financial statements like the income statement, balance sheet, and cash flow statement provide a view into the company's financial performance, financial position, and how they generate and spend cash.

Review revenue and profit trends, debt levels, cash reserves, and other key metrics. Compare these figures to industry averages and competitors to determine if the company is performing well relative to the market.

Also evaluate the company's business model, competitive advantage, and growth opportunities. A strong, defensible business model and competitive advantage, like proprietary technology or brand power, can drive future success. Consider the size and growth rate of the total addressable market to determine if there are substantial expansion opportunities.

Monitor risks and challenges the company may face, such as economic downturns, new regulations, or disruptive technologies that could impact operations. Determine if the company is well-positioned to adapt to these potential risks.

By thoroughly analyzing company fundamentals, financials, business models, growth opportunities, and risks, you can make a well-informed decision about whether a stock has the potential for strong, long-term performance . Conducting high-quality research is the key to smart investing.

Analyzing financial statements and ratios

To determine if a stock is worth investing in, you need to analyze the company’s financial statements and key ratios.

Income statement

The income statement shows the company’s revenue, expenses, and profits over a certain period. Look for consistent or growing revenue and net income. Declining revenue or losses could indicate problems. Compare income statements over multiple years to identify trends.

Balance sheet

The balance sheet provides a snapshot of the company’s assets, liabilities, and shareholder equity. Analyze trends in cash, inventory, accounts receivable, debt levels, and shareholder equity. Look for a stable balance sheet with limited debt. High debt levels mean higher risk.

Cash flow statement

The cash flow statement shows the flow of cash into and out of the business. Look for positive operating cash flow, indicating the company generates enough cash to fund operations. Negative operating cash flow could mean financial troubles.

Calculate ratios like price-to-earnings (P/E), return on equity (ROE), and debt-to-equity (D/E) to determine if a stock is overvalued or risky. A high P/E could mean a stock is overvalued. A low ROE or high D/E ratio indicates higher risk. Compare ratios to industry averages and the company’s historical ratios.

By thoroughly analyzing financial statements and ratios, you can determine if a company has a solid financial position and valuation. This helps identify stocks with strong potential for long-term growth and stability. With diligent research, you can make prudent investment decisions.

Start to trade now

Join the 100.000s that have made markets.com their home for trading. Learn about trading as you grow your portfolio.

More power in our platforms

Ready to trade? Create an account!

Enter valid email

Please enter a valid password

By creating an account, you agree to our Privacy Policy , Cookie Policy and receive marketing emails. Subscriptions can be managed under Notifications settings in your account.

Trading CFDs carries a considerable risk of capital loss.

Evaluating competitive landscape and market conditions

To properly research stocks, you must evaluate the competitive landscape and current market conditions.

Competitive landscape

Examine the company’s direct competitors by looking at their financial reports, product offerings, and market share. Determine how the company stacks up in terms of:

• Financial stability and profitability
• Product pricing and quality
• Customer loyalty and brand recognition
• Barriers to entry for new competitors

Consider how changes in technology, regulations, or consumer preferences might impact the competitive environment. Look for signs the company has a durable competitive advantage that could lead to long-term success.

Market conditions

Analyze the overall stock market and industry the company belongs to. Look at key indicators like:

• The trend in the stock market index and industry over the past 1-3 years. Rising markets generally mean more opportunity for stock price appreciation.
• Inflation and interest rates. Low-interest rates often boost stock prices, while high inflation reduces the value of future cash flows and dividends .
• Economic growth. A strong, growing economy with low unemployment points to a healthy market for goods and services, benefitting most companies.
• Consumer confidence and spending. When consumers feel optimistic and spend freely, most companies will thrive.

Consider how the economic and market outlook might influence the company’s revenue, costs, and stock price. Favourable conditions now could mean a good time to invest, while warning signs point to greater risk.

By analyzing the competitive landscape and market conditions, you will gain valuable insight into a company’s business environment and potential for future success. This helps determine whether the stock deserves further consideration as an investment.

Bottom line

With proper research techniques and tools at your disposal, you can make informed decisions about which stocks to invest in for your portfolio.

While it will take time and practice to become highly proficient, start by focusing on a company’s fundamentals, growth prospects, and competitive position.

Check multiple sources to confirm the facts and look for any red flags.

The stock market is constantly changing, so continue researching to achieve the best results from your investments.

With diligence and patience, you can find the stocks that match your financial goals.

Head over to markets.com to start trading stock CFDs now!

“When considering “CFDs” for trading and price predictions, remember that trading CFDs involves a significant risk and could result in capital loss. Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be considered investment advice.”

Written by:

Danesh Ramuthi

Tags Directory

Tuesday, 16 April 2024

Monday, 15 April 2024

Related Education Articles

How Do You Trade in Crude Oil?

The Gold Standard: A Historical and Its Modern Implications

Wednesday, 10 April 2024

How to open a free markets.com demo account

Strictly Necessary

If the toggle is to the right, this indicates the cookie category is ON.

Functionality Cookies

Functionality cookies enable a website to remember information that changes the way the website behaves or looks, like your preferred language or the region that you are in.

Targeting Cookies

Tracking cookies are used to track visitors across websites. The intention is to display ads that are relevant and engaging for the individual user and thereby more valuable for publishers and third party advertisers.

If you would like to find out more about our use of cookies, please visit our cookie disclosure and privacy policy .

How to Research Stocks

Researching stocks is complicated. This guide makes it simple.

Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University ...

Shane Neagle

Meet Shane. Shane first starting working with The Tokenist in September of 2018 — and has happily stuck around ever since. Originally from Maine, ...

All reviews, research, news and assessments of any kind on The Tokenist are compiled using a strict editorial review process by our editorial team. Neither our writers nor our editors receive direct compensation of any kind to publish information on tokenist.com. Our company, Tokenist Media LLC, is community supported and may receive a small commission when you purchase products or services through links on our website. Click here for a full list of our partners and an in-depth explanation on how we get paid.

The recent years have been stressful for investors to say the least. The Federal Reserve slashed interest rates four times, Trump continued his trade war with China—and then it just kept going with COVID and everything else.

Investing in stocks isn’t an easy game for anyone, but if you want to take a step into the field, then you’ll need to at least know how to research stocks the right way. Picking a company you like, that seems to be doing well, just won’t cut the mustard. If you can learn how to research stocks in a way that helps you make strategic moves, minimizing risk, then you’ve won half the battle.

To help you out, we’re going to take you step-by-step through the best way to research stocks, but before we do, let’s start by giving you some tips on how to first choose the right stock to research. This may not always be the right stock for you, but that’s okay, at least you figured it out before investing in it.

We’ll also run through some potential risks of investing in stocks , and some lessons we can take from past mistakes. Here’s a brief overview of the major sections we’ll cover:

• How to Find the Right Stock
• How to Start Researching Stocks
• Researching the Market as a Whole
• The Risks of Buying & Selling Stocks
• Understanding Stock Price Volatility
• How to Get Started With a Broker

How to Find the Right Stock 🔎

Before we research stocks, we need to find the right one, which is a skill in itself. To help you narrow down your search, here are some positives signs to look out for.

Stocks on Sale 🪙

Most of us love a good sale. Black Friday, summer sales? Sign us up! A 50% off Smeg kettle that I don’t need? Hand it over, baby.

Ironically though, the discounted stock doesn’t generate the same excitement. This might be because we’ve been taught to avoid buying declining stocks, or because of the herd mentality that’s evident in the stock market. We tend to go off common advice that we hear from those we look up to, or the media, and neglect the true value of the stock.

In reality, discounted stocks are just as good as anything else that’s discounted. Once you’re smart about it, and have researched the real worth of the stock, you can make some great deals.

Determine the True Value of a Stock 💰

Try to always estimate the value of a stock (often called its intrinsic value ), as opposed to basing your decision solely off its price. This will give you an idea of whether it’s currently on sale and may potentially rise to its real value. Reaching a price target should not be a factor in your decision.

Instead, it’s better to establish a price range that you would consider once a stock falls into this, this leaves room for flexibility and is ultimately a more reasonable approach.

To establish a price range, analyst reports are a great place to start. Consensus price targets are another equally useful starting point, because they give you the average of all analyst opinions.

You can find these figures on most financial websites, and without them, you’ll find it very difficult to determine whether or not you should buy a stock.

Grab Stock You Think is Undervalued 📉

Tons of research needs to go into determining a stock’s price , especially when hunting for an undervalued stock. A key way of figuring out if a stock is undervalued is by looking at a company’s projections.

One key technique is a discounted cash flow analysis. This takes a company’s projected cash flows and lowers them to meet current prices.

The values you get will be a theoretical price target. From a logical perspective, if the current stock price is lower than your estimated future value then you might be onto a winner.

Other methods of valuation include making comparisons with competitors by looking at a stock’s price-to-earnings (PE) multiple. This demonstrates how many multiples of earnings per share (EPS) investors are willing to pay for a share of the company.

A high PE ratio might indicate a stock is overvalued relative to earnings, whereas a low PE ratio might indicate it is undervalued , this will vary from industry to industry.

It’s also a good idea to take other metrics into consideration, like how much investors pay for shares in comparison to how many sales a company generated per share (PS). This will give you some more insight into the stocks value in comparison to rival companies when it comes to pure revenue.

Be Objective ✔️

We all have a tendency to become emotional and base our decisions off of inherent biases.

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.

Now, let’s get into the crux of it.

How to Start Researching Stocks 📊

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.

Here are some ways to do a thorough stock search, beginning with a company’s earnings reports.

💡 Quick note: While stocks are commonly identified by their ticker symbols, a stock’s CUSIP number is actually akin to its serial number.

Earnings Reports & How To Dissect Them 📃

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.

If you’re wondering whether every company will have these or not; both reports are legally required to be filed by all publicly traded companies, with the SEC.

The 10-Q is a quarterly report that will give you access to unaudited financial information. As it’s filed quarterly it is less comprehensive but still an important consideration for investors, at that.

Not only will you have access to quarterly financial statements, you’ll also gain insight into the company’s potential market risks, discussions from management, and any unregistered sales of equity securities.

As this document could work out at over 100 pages, it’s good to read the earnings to get a quick overall snippet and see where the company is at. Beyond this, key areas to focus on should include; earnings per share, net income, revenue, and earnings before interest and taxes (EBIT).

While these are all important to know, be sure you ask yourself these questions along the way:

• How was the company’s performance last quarter
• Was this better or worse than the quarter before?
• Have revenues increased from quarter to quarter? Why?
• Are the cost of sales going up, making it overall a more expensive operation

Asking yourself these questions will help you understand and analyze the report better. 😉

The 10-K form is an annual report and unlike the 10-Q this is audited by a third party auditor. This form is bigger, with a lot more information. The same principles apply here although we get the assured benefit of comparing year on year audited financials.

Technical Indicators ✅

In addition to the above, look at the stock chart, and take into consideration the last five years. Certain industries sell more in certain months, and lower in others.

To help you discover which trend the stock is trading in, ask yourself: is the stock trading higher or lower than its 50-day and 200-day moving averages?

A moving average filters out the ‘noise’ caused by short-term price fluctuations, and helps you focus on the real price action.

In addition to this, ask yourself, what is the trading volume in this market, are we seeing a large volume of trades buying and selling? While volume does not directly affect the price of a company’s stock, it does indicate whether there is momentum, market consensus and liquidity.

Therefore, low volume of trades will likely result in higher volatility as buyers and sellers struggle to fill each others buy and sell orders, resulting in higher spreads . Share prices will have sharper ups and downs in a thinly traded market.

On the contrary, when the company’s stock is highly traded and there is a lot of volume, buyers and sellers will find it easier to fill their buy and sell orders, spreads will be lower and volatility may be lower.

You can also see when momentum gathers in the market and seeing a large proportion of buy orders come in may mean good news for the company.

Your perspective on this volume will be filtered through the research you have carried out above; does it have inherently strong fundamentals, and now the market is noticing? Asking these questions and more is an important part of stock research, often referred to as technical analysis.

📈 Want to know more about technical indicators ? Check out our technical analysis guide for stocks .

If you’re still with us, breathe. That was a lot, we know. Once you know what to look for though, you’ll have that knowledge for every single research you conduct, ever. Now, let’s talk about margins.

Improving Margins ➕➕➕

Within these reports, you can see whether a company’s margin is improving, or deteriorating, whichever it is, it’s usually because of its management.

If sales are increasing but a company’s costs are increasing more, then you might want to give that a second look. But increased costs aren’t necessarily a bad sign.

At times, a company might want to keep costs or shed costs so that they are spending only necessary, you can think of it as staying/getting ‘lean’. But when a company wants to grow, it will need to up its spend, or “bulk”, on resources, and/or services.

This means a company might be purposely focusing on investing in the business to help it achieve long-term growth by taking actions including launching a new product or investing in talent.

Amazon is a prime example of a company that spent years focusing on investing in warehouses across the U.S., much to the frustration of investors, until the long-term benefits started paying back —big time.

That said, it might just be that the company is not managing its expenses very well. You can find out which it is, and get a better overall picture of the company, by looking at the management discussion pieces.

As a rule of thumb, any company with sales between $100 million and $1 billion should achieve a growth of 10% per annum. Bigger companies with more sales than this should grow, at the least, 3% a year.

Finally, when it comes to numbers, don’t just look at the company’s sales from last year, but from the last quarter, too. An upward trend in quarterly sales is another positive that a company is a good investment.

Stock Buyback Programs ♻📃

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.

Ultimately, it’s a way for the company to reinvest in itself, and it reduces the number of outstanding shares on the market. As there are less shares going around, investors have an increased relative ownership stake.

A share repurchase program should be a positive sign for the company, and generally, you should aim to see the number of outstanding shares either decreasing, or at least holding their value.

That said, it is good to question the ulterior motive for the stock buyback program . Sometimes, a company might advertise a buyback program to improve their finances, giving the appearance of boosted earnings.

In turn, making the company look great for any potential investors, despite the fact that the company’s fundamentals might not have improved at all. Just keep your wits about you.

🔎 Did you know: There are many different types of stocks, each with their own pros and cons. Be sure you know how stocks work before jumping into the deep end.

Don’t Dismiss New Products 🚫

This is a tricky one because the success of a new product is never a sure thing. But, it would also be unwise to dismiss companies that make these.

New products can create a lot of media hype when done correctly, and attract interest from both consumers and investors, increasing shares in the short term. Sometimes though, the product attracts negative attention or doubters, and you have to just ignore it and go with your gut.

For example, Apple’s first iPhone, released in June 2007, was doubted by many investors and the media. CEO at the time, Steve Ballet, said that it stood “no chance” of gaining a good share in the smart-phone market.

After its release, Apple sold 1.9 million iPhones and worked its way up to hold a dominant market position. In 2016, Ballet would go on record admitting that he was wrong.

However, it might not always go in the company’s favor. After Elon Musk’s chaotic launch for his cybertruck in 2019, shares plunged 6% temporarily.

Nonetheless, new products can be worth investing in as long as you stay on top of trends, know what to look out for, and jump in there early. It’s worth a try.

Take a Wider Look at the Industry 👀

Beyond finances and product launches, what will really place you ahead of the game is looking at the market as a whole . Are taxes increasing, are consumers interested in the industry, will competition potentially affect revenue?

Taking Elon Musks’ Tesla company as an example again, we can see how competition has negatively impacted its stocks in 2020 after shares fell again due to new competition in a shrinking market.

Of course, it’s not always easy to predict what will affect sales, but looking at the company from a wider perspective will help you evaluate any potential threats to share prices.

When to Hold Stock 📈

Once you’ve done your research, estimated a stock’s price range, and determined that it is currently worth more than its price then our advice is: be patient.

It can take a while for stock prices to return to their real value. Any short-term predictions are simply speculation, and may not be accurate. Stocks can often take years to return to their true value. If you’re patient, then you might just do well.

Risks of Buying & Selling Stocks 🚨

Investing in stocks will always be risky. Some risks are preventable, while others can only be hedged against. Making thoughtful stock decisions that meet your criteria and risk profile can help to keep stock risk at an appropriate level.

However, there are risks that are inherent in investing that you will not be able to control or influence, like the macro causes that we mentioned above. To get out of this alive try to stay aware, and on top of the market, and ideally make portfolio adjustments as soon as they come to light.

First and foremost, everyone knows that investing comes with financial risk. But not everyone knows how to properly check out the risks a company currently or potentially faces, or how to set themselves up to minimize it.

Financial Risk 💵

Once you’re familiar with the company’s finances, look for potential or current risks that the company faces, outlined in the risks section of the report. Within this, you’ll also find details about the company’s legal proceedings.

To offer potential investors the truth, the whole truth, and nothing but the truth; any outstanding lawsuits that a company has must be reported, including a brief description of each one.

You won’t know exactly how much these are costing the company, but you can examine it yourself to get a rough idea. Try and work out the potential impact that these will have overall.

Although a lot of companies go through small damage claims, what’s important to note is whether or not there are any larger expenses that might cost significantly more from ongoing litigation. This is the ongoing likelihood that the company may be taken to court.

💡 Keep in mind: If you’re worried about shady businesses, you can just play it safe by buying safe, reputable blue-chip company stocks .

After that, move on to the company’s Risk Factors. You might be thrown off by phrases like “inadequate liquidity could affect our future operations”, but try and work out if the risk is related to a market trend, such as increasing competition, or caused by a bigger problem, like a lack of diversified customers.

Keep in mind, there’s no right or wrong way to review or interpret a report, and different investors take different things from reports, depending on their needs, what they’re looking for, and even certain biases they may be subject to, all of which can affect how we view and interpret the information before us.

Commodity Price Risk 🔖

Commodity price risk is the risk of fluctuation in commodity prices affecting the business.

This affects companies that sell commodities, because when prices increase the company benefits, and when it drops the company losses out. You will see this happening in industries like the oil industry.

The opposite of this is true for companies that use commodities as inputs, such as fuel for airlines.

However, no company is safe from commodity risk. When the price of commodities increases, consumers tend to spend less, which in turn has a drastic effect on the whole economy, and not just individual companies.

Headline Risk 📰

You know when a particular company starts to make the headlines for unpopular reasons. That’s headline risk. 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.

Although they say there’s no such thing as bad media, it certainly can affect stocks in the short term, as seen when Elon Musk smoked marijuana on Joe Rogan’s podcast. Elon again, we know, but what can we say, he’s the perfect example of so many things gone wrong (and right).

🔔 Reading headlines is a crucial part of stock research. However, following news is just one of the aspects of fundamental analysis for stocks .

On a larger scale, when vapers were released they were promoted as being ultimately better for our health than smoking tobacco.

Since then, however, company’s have invested heavily in research that possibly, but not conclusively, links vaping with some potentially worse health risks than tobacco, damaging vaping, and thus damaging vaping company’s sales.

Now, we can’t leave out political risk with all that’s happening, can we? Nope. If you’re thinking about investing in 2020 then this could be a major factor for you to take into consideration during your research.

Political Risk 🏛

Political risk affects companies around the world, but especially when when very large-scale events like Brexit are going on.

Back when Brexit was in its early stages, the U.K. government had predicted that its economy would shrink by 3.9% over the coming 15 years. This figure is based on an orderly exit with a ratified withdrawal agreement.

A hard Brexit, on the other hand, could see an ugly decline of 9.3% in the U.K. This isn’t just bad news for Britain, it’s bad for the world when the 5th economy in terms of gross domestic product, suffers a contraction.

Overall, political risk is hard to avoid because it’s so unpredictable. Who was to predict that Trump would take out an Iranian commander, resulting in a slide in US stocks, and a surge in oil prices? We can only advise you to stay aware that rising geopolitical tensions can raise political risks.

Rating Risk 🏅

Last but not least, make sure you research for any rating risk. This happens when a business either needs to achieve or maintain a certain number.

All businesses have this crucial number as far as credit ratings go and it determines how likely they are to pay back a loan, or financial obligation, without defaulting an agreement.

A credit rating directly affects the company’s chances of being approved for a loan or given favorable terms, not to mention affecting how much a business will pay for financing. However, publicly traded companies must look out for another number just as much, if not more than the credit rating; the analyst rating .

The psychological effects of the analyst’s rating can be huge, and can really affect the market. It can also have a much larger impact on things than the actual reason for the rating in the first place.

Risks will always be there, you can just hedge against them and make the appropriate changes as they gain momentum. Fortunately, others have made mistakes in the past that allows us to learn from, and avoid as a result.

How to Understand Stock Price Volatility?

“When investing, pessimism is your friend, euphoria the enemy.” —Warren Buffet

Each year, Warren Buffett releases an annual shareholder letter that includes some golden nuggets of information. In a letter to Berkshire Hathaway in 2008 Buffet said, “When investing, pessimism is your friend, euphoria the enemy.”

While 2008 and 2009 were times of enormous pessimism in hindsight, it was in fact a time of great opportunity. As PNC Investments CEO Rich Guerrini said, “If you did nothing in 2007, you’d be in a great situation now.”

Here are some lessons from the year 2008 that we can take with us into the years to come, courtesy of Buffett himself.

Diversify Your Stock ⚖️

We’ve said it before, we’ll say it again, don’t just invest in one stock .

In 2008 Warren Buffett told shareholders, “During 2008 I spent $244 million for shares of two Irish banks that appeared cheap to me.” This resulted in an 89% loss by the end of 2008.

He continued, “The tennis crowd would call my mistakes ‘unforced errors.’” Not only this but, as the crisis ended, these Irish banks were both nationalized.

The lesson : keep a diversified portfolio so that if one of your stocks becomes nationalized, you won’t make a 90% loss.

Don’t Overextend Yourself 🚫

Another little golden nugget from this 2008 letter is that signs of aggressive mortgage lending the decade before should be considered as advanced warning for the housing market.

“But investors, government and rating agencies learned exactly nothing from the manufactured-home debacle…Instead, in an eerie rerun of that disaster, the same mistakes were repeated.”

Don’t repeat the same mistakes that others have already made, it’s not going to work out.

Stay Objective 🎯

We’re all partial to some biases here and there. But being aware of your innate biases and emotions when investing can take your research to the next level.

An unfortunate example of this in 2008, is when people began panicking and selling off their portfolios in droves. If they had stayed objected and avoided acting on emotions they would have benefited from the large increase in stock value across the board that followed over the next decade.

Don’t take any drastic actions purely as a result of strong emotions. Look at the facts, stay objective.

Don’t Follow the Herd

This is a common one but it’s really, really important. We can all have tendencies to get excited when we see people investing in trends in the masses, like bitcoin BTC, and cannabis.

Choosing to invest in trends can mean that you’re not following your investment strategy fully, but instead, getting pulled in by the hype.

It’s not that you can’t do this every now and then but ultimately, your decisions when it comes to investments shouldn’t be based on what the crowd is doing . One of Buffet’s favorite phrases is, “The trend is your friend until the end.”

The first thing to do before all of this is to make sure you’re with the right broker, and utilize all of its advice services, and research tools.

🪙 Some brokers allow you to trade for free. Here’s our list of the top 5 brokers for free stock trading .

Certified financial planner with Palisades Hudson Financial Group, Benjamin Sullivan said, “ Investing isn’t an all or nothing decision .” Putting small amounts of money to work overtime reduces your market-entry risk and is an effective way to conquer investor paralysis.”

How a Broker Can Help You?

If you’re just getting started in the industry then you’ll need the right stock broker by your side. 💪

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.

Some brokers provide a qualified broker to offer you guidance and advice on any potential risks, and even assist with your strategy. If you’re still unsure about your investment then you could get some valuable advice from professionals.

Overall, although your bound to make more than a few errors on your journey, your broker should play a crucial part in helping you minimize risk and loss as much as possible.

The Bottom Line

While it’s important to do your research fully, you don’t need to be an expert to extract the right information. The amount of earnings reports can become too much if you’re not focused, so try and just look at the ones that are of interest to you.

Try to be aware of the bigger issues that might affect stock, like Brexit or the current coronavirus.

Of course, you can’t do any of this without a broker, and finding the right one will really put you in a powerful position going forward.

It’s worth noting, stocks are risky and therefore they’re not suited for everyone. To learn more about stocks you could check out our stock trading guide . Alternatively you could do some research on ETFs, bonds or mutual funds. Find one that suits your style and experience and go for it.

Get Started With a Stock Broker

Now that you learned the fundamentals of researching stocks, it’s the right time to find the stock broker who can help you improve your stock trading strategies.

TS Select: $2,000

Beginners and mutual fund investors

Active options and penny stock trading

Powerful tools for professionals

50% Off Future

$3 or $5/month

$5 required to start investing

$0 to open account

People who struggle to save

“Invest spare change” feature

Commissions

Account minimum

Minimum initial deposit

About the author

467 free spots remaining

By reading Five Minute Finance each week, I learn about new trends before anyone else. I can’t emphasize enough how valuable that is.

Five Minute Finance has influenced how I see finance - I rely on it for insight on the latest news and trends at the intersection of finance and technology.

Cookies & Privacy

How to Research Stocks: A Step-by-Step Guide

Are you considering taking the plunge into investing in stocks but need help knowing where to start? Analyzing stocks and learning about the stock market can feel overwhelming and intimidating. However, with the right strategies, it doesn't have to be.

In this blog post, we'll walk you through a tried-and-true methodology for how to research stocks that should set you up for success in creating your investing strategy .

Lost in the stocks? Find the way by understanding your risk tolerance, then move on to understanding what publicly traded companies do, what products they offer, how they make money, and how they've performed in the past. 

From understanding key concepts such as individual stocks and financial statements, identifying reliable sources of information, and more – continue reading to learn how to research stocks like a pro!

What Is Stock Research?

Stock research is the process of looking at various valuation metrics of a company, including its financials, past performance, leadership team, and possible competition within the same industry.

This analysis helps future investors examine stocks and determine their suitability for their investment portfolio. That's why we're here to help you learn how to research stocks! Researching stocks will help your cash flow and overall personal finance improve.

Understand the Two Types of Stock Analysis

When analyzing stocks, you can go two primary ways – fundamental analysis and technical analysis.

Fundamental Analysis

Fundamental analysis is rooted in the belief that a company's stock price doesn’t always accurately represent the intrinsic value of the underlying business. This type of analysis is a primary tool for value investors seeking the most promising investment prospects.

Fundamental analysts use various valuation metrics and information to assess whether a stock is reasonably priced. This analytical approach appeals to investors seeking lucrative long-term investing goals.

Technical Analysis

Technical analysis is the assumption that a company's current stock price incorporates all relevant information about the company's core business and tends to follow trends. In simpler terms, analyzing a stock's price history may assist in predicting its future behavior.

Identifying patterns in stock charts and discussing moving averages are standard practices in technical analysis, which primarily concentrate on short-term price fluctuations.

4 Steps to Research Stocks

Before we begin – people consider stocks long-term investments because they carry a lot of risk; you need time to weather any ups and downs and benefit from long-term gains. That means the best investment strategy includes investing in stocks with the money you won't need for the next five years.

Gather Your Stock Research Materials

Begin by examining the company's financial statements. Quantitative research involves gathering a few documents that companies are mandated to submit to the U.S. Securities and Exchange Commission (SEC):

• Form 10-K: Annual reports containing audited financial statements. Here, you can analyze the company's balance sheet, income statement, and cash management, as well as the company's revenue and operating expenses.
• Form 10-Q: Quarterly reports providing updates on operations and financial outcomes.

Basically, forms like the 10-Q are like a company’s Instagram account, providing every major update about the company.

The SEC's Electronic Data Gathering, Analysis, and Retrieval ( EDGAR ) website offers a searchable database for the forms mentioned above. It’s a valuable tool for researching stocks. This data will aid in comparing a company's performance against other investment options.

You can find these annual (10-K) and quarterly earnings reports (10-Q) on every company's investor relations page or by searching for a company's records in the SEC's EDGAR database online.

If you're pressed for time when researching stocks, you can find critical financial documents and vital financial ratios on your brokerage firm's or significant financial news websites. Regularly reading up on industry trends will also give you a competitive advantage.

Redefine Your Focus

To avoid feeling overwhelmed by the mass of numbers in financial reports, focus on the following items. These will provide valuable insight into the financial health of a company:

Revenue is the income generated by a company within a particular time frame, offering a broad view of its financial performance. You can classify revenue into operating revenue (from core business activities) and non-operating revenue (including one-time events such as asset sales ).

A company's net income represents its earnings after deducting operating expenses, taxes, and depreciation from revenue. Basically, a company's revenue is the same as your gross salary. A company’s net income is the amount you have left after paying taxes and living expenses.

Earnings and Earnings per Share (EPS)

Earnings per share (EPS) measures a company's profitability by dividing quarterly or annual income by the number of outstanding stock shares. The higher a company's EPS, the greater the profit and value investors perceive.

Price to Earnings Ratio (P/E)

To determine a company's price-to-earnings (P/E) ratio, you can divide its current stock price by earnings per share. You can calculate the trailing P/E ratio using the company's revenues from the past.

The forward P/E ratio considers forecasted earnings from Wall Street analysts. Yes, like from the Wolf of Wall Street. This P/E ratio indicates the value investors place on the company's profits, showing how much they are willing to pay for each dollar earned.

Return on Equity (ROE) And Return on Assets (ROA)

Return on equity (ROE) highlights how much profit a company generates with each dollar shareholders have invested. ROA shows what percentage of its profits the company earns with each dollar of assets.

You can derive ROE and ROA by dividing a company’s annual net income by one of those measures. These percentages also tell you how efficient the company is at generating profits.

Debt to EBITDA Ratio

Assessing a company's financial health involves examining its debt. The debt-to-EBITDA ratio is beneficial for beginners among the various debt metrics.

Anyone can calculate this ratio by referencing a company's financial data for total debts and its income statement for EBITDA (earnings before interest, taxes, depreciation, and amortization). A high debt-to-EBITDA ratio may indicate a riskier investment during times like a recession .

Price to Book Ratio (P/B)

A company's book value represents the net value of its assets. Imagine it as the hypothetical amount of money the company would receive by liquidating its assets.

The price to book (P/B) ratio compares a company's stock price with its book value. It's most effective when used alongside other metrics for comparing businesses within the same industry.

Price to Sales Ratio (P/S)

The P/S ratio is a valuation ratio comparing stock prices to revenues. P/S indicates the value financial markets have placed on each dollar of a company’s sales or revenues.

The ratio describes how much someone must pay to buy one share of a company relative to how much that share generates in revenue for the company. Generally speaking, the lower the P/S ratio, the better.

Perform Qualitative Stock Research

Quantitative stock research uncovers a company's financials, while qualitative stock research reveals vivid details that accurately depict its operations and prospects.

As Warren Buffett famously advised, buying stocks should be driven by a desire to own a company rather than expecting its stock to rise. When you invest in stocks, you acquire a personal stake in a business.

To screen potential business partners, consider the following questions:

How Does the Company Make Money?

It's evident in some cases, like a retailer specializing in selling a company's product. However, it may be less obvious, like a fast-food company that earns revenue from franchise sales or an electronics store that relies on consumer financing.

A valuable principle that has proven effective for industry leaders is to invest in companies that align with common sense and are easy to understand.

Does This Company Have a Competitive Advantage?

Look for something about the business that makes it difficult to imitate, equal, or eclipse.

Competitive advantages include the brand, business model, ability to innovate, research capabilities, patent ownership, operational excellence, or superior distribution capabilities.

The more challenging it’s for competitors to breach the company’s moat, the stronger the competitive advantage.

How Good Is the Management Team?

A company is only as good as its leaders. You can learn about management teams by reading their words in the transcripts of company conference calls or any annual report.

Aside from conducting stock research, it's crucial to look up the company’s board of directors and the people representing shareholders in the boardroom.

Put Your Stock Research Into Context

Before purchasing any stock, it’s crucial to understand the company and the reasons that justify a long-term partnership. Crucially, context plays a vital role in achieving this.

When considering long-term context, broadening your research scope and examining historical data is essential. Broadening your research scope will provide valuable insights into the company's financial situation, resilience amidst challenging times, responses to obstacles, and capacity to improve performance and deliver value to shareholders.

To gain perspective on the company, you must look at stock analysis and critical ratios compared to industry averages and similar businesses. Many brokers provide research tools on their websites, including a stock screener, which is convenient for making these comparisons.

Investing and buying stock can be intimidating at first, but with the help of our simple and comprehensive guide, you can develop the skills you need to become a successful investor . Learn all there is to know about the industry or company of your choice, and watch your portfolio grow as you join the stock market. 

And while you research, why not make some money using Honeygain? It's the first-ever app that lets you make money online by simply sharing your internet connection. 

Download the app on your phone or laptop, leave it running, and watch your earnings grow while you research stocks. Whoever said multitasking is hard?

related_articles

ready_to_make_sweet_money

• Credit Cards
• Financial Services
• Investments
• Infographics
• Youtube Channel

Become Your Own Stock Analyst - Stock Research for Beginners

Table of contents

Where Should You Start?

Fundamental analysis, technical analysis, earnings per share, return on equity and return on assets, do i understand this company, how does the company make money, why is this company better than its competitors, are there any red flags, finally, compare all your options, where can you actually buy a stock.

• Frequently Asked Questions

If you're thinking about investing some of your hard-earned money so that it will work for you while you sleep, but you don’t want to pay for any advisory or brokerage services, you'll need to learn how to evaluate whether an investment is worth it.

Stocks are a standard investment option, and stock statistics show that the global market cap reached a record $95 trillion in 2020. However, for you to get the most out of your stock investment, you'll need a bit of know-how when it comes to how to research stocks.

So, let's cover some basics to give you a headstart for your subsequent research.

Seasoned Wall Street analysts use a range of long-established criteria to research stocks, and you can follow their lead to discern whether the stock you're looking into is worth its price.

If you’re a complete beginner, the very first step is figuring out the industry you’d like to invest in. The next step when researching stocks would be to select one or two publicly traded companies from the same industry, as it is easier to assess and compare when you have a similar set of values to work with.

If you were to trail a stock market analyst as they look into a company, you'd find them researching all available information, including the company’s core business and past performance. They'd learn about the company starting from its financial statements, and they’d also look into its suppliers, competitors, and customers.

Beginners might not need to follow all these steps, but there is one valuable lesson to take away from the experts - you should do stock research in as much detail as possible. You likely won't have any issues finding the information you need to do this since a company’s investor relations are not deemed transparent if all the trading-relevant data is not readily available. 

It will take considerable time to go through a company’s performance, but that is the best way to research stocks: slowly and in detail.

Now, let's take a more detailed look at how to research stocks.

What Type of Research Can You Use?

The two most common types of research you can use to help you figure out whether a stock is worth investing in are fundamental and technical. Since they are quite different, one is better suited to a particular type of investment than the other. Fundamental analysis is better suited to long-term investment opportunities.

On the other hand, technical analysis of stocks will work better for short-term investments. 

If you’re looking to become a long-term investor, fundamental analysis is the way to go. Value investors typically use the fundamental analysis approach, assuming a company’s current stock price doesn't necessarily reflect the intrinsic value of the underlying business and is likely to yield solid long-term returns.

For this type of independent research, you'll typically use valuation metrics such as revenues, net income, profit margins, return on equity, price-to-sales ratio, price-to-earnings ratio, debt-to-EBITDA ratio, and price-to-book ratio. You'll be able to find these in the company's annual reports and financial statements such as the income statement and balance sheet.

Digging into a company’s financials is called quantitative research, and one of the best resources is the SEC’s Electronic Data Gathering, Analysis and Retrieval (EDGAR) , which offers a database for researching stocks.

Unlike fundamental analysis, which focuses on a stock’s financial metrics seeking to determine its fair market value, technical analysis focuses on a stock’s price . 

If you're evaluating your stocks using technical analysis, you are looking at a particular stock’s price through time and searching for trends and patterns. In short, you are looking into the past to predict the future price of a stock.

Still, at this point, we feel like it's worth mentioning that if you’re a beginner who’s looking to invest short term and earn a profit, the best way to start is to go ahead and use a robo-advisor . These affordable tools will do the tough part of the research for you. 

Metrics To Look for When Researching a Stock

Since estimating future stock prices is sometimes nothing short of science, some metrics can help you perform this task. These can help you determine the pros and cons of a particular company or industry. Even if you’re going with an investment app to micro-invest in stocks, knowing these terms and what they mean can give you the edge you need to get started. 

You can also estimate profitability, performance, and how the company or industry compares to others. So if you’re wondering “what information should you research before you invest?” - all these are essential for making your final investment decision.

P/E ratio, or price-to-earnings ratio , is the metric growth investors will use to estimate the future price of a stock. Essentially, this metric indicates how much other investors are willing to pay for $1 of the company’s earnings.

This ratio also compares a particular stock with others within the industry or niche. Investing in a company with a higher P/E ratio according to stock market data is typically better than going with one with a low P/E.

Earnings per share is another metric you could use, even though it is less reliable than others discussed here. Earnings per share indicate a company's profitability on a per-share basis. To get to this number, you'd divide earnings by the number of shares on the market for trade.

This is a solid indicator, but it doesn't tell you or reflect in any way what the company does with its capital. Some companies will reinvest it in the business, others pay it out as dividends to shareholders. To get the most out of this metric when researching stocks, it pays to inform yourself on this matter.

The PEG ratio is essentially an evolved version of the P/E ratio, since it also accounts for growth. This is a much clearer indicator of stocks' performance in the future and is a great metric for long-term investment.

PEG is calculated by taking the P/E ratio and dividing it by the estimated growth rate. The growth rate is also a vague term that is very open to interpretation, especially in the short term. However, a five-year growth rate, for example, helps take the volatility somewhat out of the equation and streamlines your stock analysis.

When looking at a PEG metric, you should know that the baseline is 1. Companies with a PEG ratio higher than that are possibly either overvalued or the market has placed a high growth expectation on the company.

Book value is another helpful metric that represents the net value of all of a company’s assets. Essentially, this is the amount of money the company would have if it sold everything it owned. The price-to-book (P/B) ratio, which you'll often encounter when doing your company stock research, compares the company's stock price and book value.

Return on equity (ROE) and return on assets (ROA) are two additional metrics to pay attention to. ROE can show how much profit the company makes on each dollar invested by shareholders. It is calculated by dividing the company’s net income by its shareholder equity.

On the other hand, ROA discloses the percentage of the company's earnings that it generates with each dollar of its assets. Both can tell you a lot about the company's efficiency when it comes to generating profits and its overall stock valuation.

Still, this is not always "natural," so these indicators can be misleading. Companies can tweak these metrics artificially, for example, by taking on a loan or by buying back their shares from shareholders.

What Are the Questions To Start Your Analysis With?

If you are a beginner, you can streamline the screening of your new investment by asking yourself the following questions:

Understanding precisely what the company you're looking to buy stock in does can make all the difference. Learning about the company’s product or services, its share float percentages , history, and plans for the future can influence your process of analyzing a stock more than you know.

This is sometimes fairly obvious. For example, if you're investing in Domino's, you’ll be well aware that selling pizza is how the company makes money. 

It’s not always so simple though, and you should understand how the company creates its revenue and what its competitive advantage is. Once you have that information, you can assess how scalable it is and whether or not it’s worth your investment.

No company is an island. To make a good judgment, you have to find out for yourself where the company stands in comparison to other companies in the same industry. This is one of the key elements to understanding stocks.

Does the company you're looking to invest in have something unique that others don't? Is it difficult to imitate or improve its brand or business model? Does it have superior distribution capabilities? Does it have a visionary management team? The harder it is for the competition to dethrone your company, the greater the chance your investment will pay off.

It can be frustrating to invest in a company only to find out that its management has changed and taken things in another direction. Looking into all the "what ifs'' that could go wrong before investing is a good idea. 

While it’s not really a measurable source of information on stocks, this way, you get to at least consider whether or not you’d be comfortable with the worst-case scenario. If the doomsday scenario looks grim, it might be best to invest in a different company.

By now, if you’ve considered and processed all the information we've been mentioning throughout this guide, you'll have a decent understanding of whether or not you should purchase a particular stock. However, before you do that, make sure to put everything in the proper context.

If you’re still unsure of how to analyze a stock for investment based on the competition, then make sure you focus on gathering data about a certain company and comparing it to industry averages. In the process, you’ll also need to look into other companies operating in the same sector.

This will put those astounding numbers into perspective, and you'll be able to better estimate how valuable the company actually is.

These days you have two options when it comes to purchasing a stock . You can either purchase it with your stockbroker or use one of the many reliable online brokers and open your own online brokerage account .

Summing It Up

Hopefully, at this point, you have all the metrics you need to analyze stocks and figure out whether purchasing shares in a public company is worth it. 

You want to know about the company's revenue, news about changes within the company, its investment strategies, and all the historical data you can find. Lastly, put this into perspective by comparing your research with other key players in the industry.

These are the basics of analyzing stocks for beginners. Once you combine all of this information, you should have a complete picture that will help you decide whether or not the investment will be worth it.

What is the best way to research a stock?

The best way to research stocks and make investment decisions depends on whether you’re looking to purchase the stock long-term and hold or buy short-term and sell for a profit. 

For those looking to buy and sell for a profit in a short timeframe, the research should focus on the stock's historical price. By looking at the historical prices, you'll be able to find a pattern and estimate its future price.

For long-term investments, it pays off to learn more about the company itself, as that will help you make a judgment about the stock's potential performance in the future.

How do you analyze a stock before buying?

Typically, the first thing you should look into when researching the stock market is the stock price, both current and historical. Revenue growth, earnings per share, the industry the company operates in, and analyst reports are all worth considering.

Analyzing a stock takes time and effort; you’ll need to look at several essential metrics and learn how to interpret stock charts to evaluate the underlying business’s financial health and decide whether its stock is worth buying.

What is the best stock research site?

The most popular websites that can help you with your stock research are Yahoo Finance, Bloomberg, and the Motley Fool. It’s vital that you evaluate your priorities for the "best stock research websites" and find the one that matches those the best.

I have always thought of myself as a writer, but I began my career as a data operator with a large fintech firm. This position proved invaluable for learning how banks and other financial institutions operate. Daily correspondence with banking experts gave me insight into the systems and policies that power the economy. When I got the chance to translate my experience into words, I gladly joined the smart, enthusiastic Fortunly team.

More from blog

• Centers and Institutes
• Parker Center for Investment Research

eCornell’s Evaluating Stocks Course Furthers Cornell’s Investing Offerings

By susan hu.

Close up of a stock ticker.

How do you learn to pick a stock in a rigorous and disciplined fashion if you are no longer enrolled in school full-time?

Due to high demand, eCornell took on the challenge of answering this question and reached out to the SC Johnson College of Business . Scott Stewart , CFA, MBA ’83, PhD ’85, clinical professor of finance and accounting and academic co-director of the Parker Center for Investment Research , designed an online course that can be completed from anywhere in the world with a flexible schedule. Taking the framework of the Parker Center’s Stock Pitch Camp , a summer seminar that introduces the basics of fundamental investment research, Stewart transformed the experience into an intensive two-week course, Evaluating Stocks , open to anyone interested in learning the fundamentals of picking a stock.

During the course, participants are asked to select a stock and research it using company information, financial data, and online resources. They are taught to draw preliminary business conclusions about a stock, practice basic valuation to decide if the stock is a “buy,” and make a written recommendation on whether to pursue further research or pass.

The online course was launched in January 2022 as part of an Investment Strategies Certificate program. Several participants shared their experiences and takeaways from the course.

Cornell Alum Seeking to Grow Family Funds

Nancy Wu ’91, MFS ’93 lives in Santa Monica, CA. At Cornell, she studied nutritional sciences and food science, and upon graduation, she primarily worked in the food industry, engaging in product development and sensory evaluation. After her third child, she stepped away from the workforce and began volunteering, slowly taking on treasurer roles. Now that her children are older, Wu constantly seeks learning opportunities. Recently, she’s been interested in learning more about investing to grow money for her family. This interest ultimately led her to the Evaluating Stocks course.

Prior to finding this course, Wu was not aware that Cornell offered online courses and certificates through eCornell. She was used to taking classes offered locally, but when she experienced difficulty finding one on picking stocks, she resorted to an online search. While a few different options appeared, Wu naturally went with her alma mater.

The subject was new to her. Before, she’d invested using an index fund, a passive process: You put the money in a fully diversified portfolio and let it sit. Wu hoped to gain skills to become more proactive. There were assignments to submit, including two videos—one pitching the selected stock and one giving an evaluation of the company—and Wu found the feedback from Tom Walsh, the course facilitator, to be very helpful. Wu was so absorbed by what she was learning that she went even further than the assignment called for in researching her stock.

She explained that the course was a good start because it taught her what to look up—for example, the Securities and Exchange Commission’s 10-K report, a trove of good information about a company—and how to make informed choices. “I enjoyed it a lot more than I expected,” she said, adding that it was one of her favorite online classes. She recommends the class to others interested in learning about investing. Though the two-week course is challenging, it is definitely doable, she said.

Currently, Wu is still following the stock she chose for the course and is looking into a second eCornell course, Portfolio Management Essentials .

Retiree Expands Her Role in Investment Strategy

Pratibha Reebye, a retired pediatric psychiatrist and clinical professor emerita from the University of British Columbia, owns a small business in rental accommodation and retains an advisor who manages her retirement funds. Reebye has always been detail-oriented and wanted to gain a better understanding of her asset allocation and have more control over her investments.

She said the course was well designed, and she liked the approach Stewart took in explaining the fundamentals rather than diving into details that were too advanced.

It’s still too early for Reebye to measure the long-term results of her stock-picking skills, but she can say for certain that financial news does not intimidate her anymore, and she can now confidently approach her financial advisor to discuss her funds. “Previously, I thought they had all the knowledge,” she said. “Now I speak their language.”

For those interested in learning about selecting stocks, Reebye has the following advice: “If you want to learn from top professors and top-notch courses, then you have to go for Cornell.” She ran across some free courses, but she didn’t consider them. “I went for the best.”

Testing Passion and Building Investing Skills for the Future

Sammy Atri Salame, 30, has spent the past 10 years working for his family business in Mexico City, manufacturing house cleaning products. He has always been interested in finance and investing and dreamed about one day starting an investment fund.

Having earned his bachelor’s degree in business administration in the United States with a focus on management, Salame also took some finance courses. However, he wanted to know more. In 2023, Salame began searching for an online course on evaluating stocks. He found a few options offered by top US universities, but after reviewing the course information for each, he selected the Cornell course—the only one that focused on hands-on stock-picking.

The course made him think. He had a lot of questions upon starting it and said he often lay awake at night pondering them. Ultimately, the course proved to Salame that he truly is passionate about investing. “I would highly recommend the course,” he says. Salame advises those taking the course to read the materials carefully and take time to process them.

Since finishing the course, Salame hopes to invest on his own first, then invite family members and friends to invest with him, and once he’s achieved positive results, he plans to translate it to his family business.

Furthering Cornell’s Offerings in Investing

Cornell offers opportunities across campus for students to expand their understanding of investing, whether learning about securities analysis and asset management in the public markets through the Parker Center for Investment Research; pursuing an education in private equity and venture capital at the Charles H. Dyson School of Applied Economics and Management and the Samuel Curtis Johnson Graduate School of Management ; studying real estate investing through the Center for Real Estate and Finance and the Baker Program in Real Estate at the Cornell Nolan School of Hotel Administration ; learning financial engineering at Cornell Financial Engineering Manhattan ; or forming industry connections through hosted events.

In 2019, the Cornell SC Johnson College of Business established the interdisciplinary theme Investing at Cornell to connect faculty and students across the college and Cornell University who are interested in studying, researching, and working in the field of investments.

The Evaluating Stocks eCornell course adds to a rich array of offerings in the field and provides education for those beyond the university community. The course has been popular on the eCornell platform, with more than 350 participants to date.