There is no magic formula when it comes to buying stocks, although there are a few tried and true practices that you can research and try to adopt. Since it is the stock market, however, there is never any 100% guarantee. Every now and then, even the most experienced and knowledgeable traders get something wrong with their stock market analysis.
Still, you can increase your odds by taking the time to make a few fundamental assessments when you are looking to a stock.
Here are a few questions to ask when you get started:
“Is this particular company making profits?”
“Are its revenues increasing year-to-year?”
“Can the company pay its debts?”
“Is there any negative publicity about the company in the news?”
As long as the answer to the first three questions is “Yes” and the fourth one is “No”, the company is probably worth looking more into. Take a look at the stock’s summary quote page and check its earnings per share (EPS). It also helps to calculate the P/E ratio, which refers to price-to-earnings and allows you to compare a company’s market share per price to its yearly EPS.
While EPS growth changes overtime, you need to try and figure out what a company is doing that affects the EPS. A consistent negative EPS growth, needless to say, might be a red flag.
Sometimes newer companies are worth checking out – especially if the industry is booming and a particular company seems to be bringing something new and unique to the industry.
Stock Market Analysis With Regards to Revenue
There is also revenue to consider when doing stock market analysis on how well a company’s model is working. Larger corporations such as Netflix and Amazon can actually go years without generating positive EPS despite all of their revenue, since they are investing a huge portion of profits into expanding and growing even bigger.
Don’t try to do extensive analysis yourself. Whether you’re brand new or consider yourself to be fairly experienced, you’ll still need to consult with your advisor or broker. At the very least, look for a reputable site that offers educational materials and helpful newsletters.
Keep in mind that stocks aren’t just priced based on prior or current performance of the businesses. Part of their pricing is based on expectations for future performance. Companies usually disclose information regarding their own internal expectations for revenue and / or EPS in addition to any industry-specific metrics.
To help you understand this kind of information, you’ll really want to talk with your advisor or subscribe to a stock market analysis newsletter or club such as the ones offered by Capitalist Exploits. They track capital flows and numerous other trends to establish where true value really lies, and then spend time determining how those views will be best executed.