How to Analyze Stocks (For Beginners)

No.1 Article of Penny Stocks

Sponser Links

4 Tips for Analyzing Stocks

If you're ready to invest in personel stocks, then you need to know how to analyze stocks. mental that a enterprise is going to do well is no surmise to blindly invest in that company's stock. Once you've decided that you want to invest in a company, you need to take a look at how the enterprise is doing, how it has done in the past, and most importantly, what it is planning to do in the future. You then need to decree if the stock is a good buy based on the current price. Even if the enterprise is going to grow at 25% a year for the foreseeable future, the stock price won't be a good buy if it's valued like it will grow 50% a year!

Penny Stocks

The four steps to analyzing a stock are:

How to Analyze Stocks (For Beginners)

Determine how the enterprise makes its money Figure out the company's finances Analyze the future increase of the company Determine whether or not the current price is a good one
Actually, before you start analyzing a stock, you have to do is frame out which stock you want to research! Let's say that I am concerned in the (imaginary) enterprise Bill's Brews (Bbrews) after trying their signature Bill's Acorn Ale. I go to a finance website, such as Yahoo! Finance or Cnn Money, and type their ticker fastener (in this case, Bbrews) into their stock price widget, and start to do research.

The first thing I want to find out is what all the enterprise is all about. Many associates are diversified and do more than you may know. For example, citizen know that general electric makes light bulbs, but they may not know that they also make airplane engines and have a remarkable finance arm. In this case, Bbrews makes not only beer, but also a wide range of soda pop. In fact, 60% of income comes from soda pop, but only 10% of income come from soda pop. In other words, 60% of total sales money comes from sales of soda pop, but only 10% of profits. Bbrews makes much more money for every beer it sells than for every bottle of soda. This may make you more likely to invest in Bbrews, because you see that the goods you like - the beer - is the one development money.

Secondly, now that you have a relatively qualitative idea of how the enterprise makes money, you need to get a more quantitative idea. You should find out the price/earnings ratio (the ratio of the stock price to the annual income of a stock), the price/sales (the ratio of the stock price to the annual sales), the behalf ratio of the company, and comparison numbers for other businesses in this industry. You will also want to get any other financial data from this enterprise that you can get your hands on, but these are the most leading numbers for proper diagnosis of a stock. midpoint values for these numbers will vary tremendously from business to business and depending on which stock sectors are hot, so to tell if the whole is low or high, you categorically need to check out associated associates in the same industry. For example, you should compare Bill's Brews numbers to Budweiser, Boston Brewing, and Molson Coors.

Third, you should find out what analysts are mental about this stock and read their opinions. You should also find out what new increase rates in profits and sales have been. Check if enterprise insiders or institutional investors, who may have a best idea of how the stock will perform, are buying shares of the stock. If a Ceo thinks that the stock of his enterprise is undervalued, he will be more likely to buy it, and if he thinks that it is overvalued, to sell it. Since the Ceo probably knows more about the stock than most people, this is a good indicator that it may be undervalued. Analysts also spend long periods of time learning personel firms and finding out if they are overvalued or undervalued. You should also read news reports about the enterprise to see if there are any catalysts for higher than predicted growth. For example, let's say that Bill's Brews just won an award for "Best American Ale" this year. This may lead sales of Bill's Brews to increase in the coming year.

Finally, now that you have determined all of this, you need to synthesize all of the data to decree whether or not the stock is a good buy. This is surely more than an art than a science, but you should decree that the numbers you have found make a good investment. One rule of thumb is that the Peg ratio (price/earnings to growth) should be less than 1. In other words, the P/E ratio (found in step 2) should be the same or less than the annual ration income increase rate. For instance, if the P/E ratio is 10 (the stock price is 10 times annual earnings) and the predicted increase rate is 15% annually, the stock may be a good buy. If the P/E ratio is 25 and the predicted increase rate is 10% annually, it may not be a good buy. However, this is only a rule of thumb and there are many exceptions to the rule.

Now you are ready to analyze stocks on your own. There is nothing like knowing that your investing future is in your hands, and that you will be able to decree when a stock is a good buy and when it isn't. Good luck finding the right stock venture for you!

How to Analyze Stocks (For Beginners)