Successful investing is not throwing stocks on the wall and seeing which one sticks. You need to study up and do enough research. There are many reasons why retail investors lose money in the market. However, one of the biggest reasons is they don’t have the resources to research a whole bunch of stocks, unlike institutional investors with the money and equipment. But there’s a way: the following are the most essential stock information you need to focus on when researching.
The Business Model
Experts advise investors to not buy a stock unless they have an exhaustive knowledge of how the company makes money.
Scrutinize the way the company makes money, what they manufacture or what services they offer. What’s the status of their flagship product?
Luckily, the data is easy to find. Just visit the company’s official website and read about them. Answer any questions you might have about the business.
Price-to-Earnings Ratio (P/E)
The price-to-earnings ratio is one of the ratios to measure a company’s current share price relative to its per-share earnings.
You can compare the company to other corporations so you can determine its relative value. Therefore, if a company has a P/E ratio of 20, investors are willing to pay $20 for every $1 per earnings. This might sound expensive but not if the company is growing fast.
You can find the P/E ratio by comparing the current market price to the cumulative earnings of the previous four quarters.
Take the number against other companies similar to the one you’re researching. If the target company has a higher P/E than other similar companies, find the reason. If it has lower P/E but is growing rapidly, watch that investment.
At first, you might think beta is difficult to understand. It gauges the volatility, or how wild your company’s stock has performed over the last five years.
Beta measures the systemic risk involved with a company’s stock against the whole market. You can find this measure on the same page as the P/E ratio.
Any beta higher than 1 means higher risk. Anything lower means lower risk.
Watch out for high beta stocks because even though they have the potential to make a lot of money for you, they can also take away your money quite fast. A lower beta means the stock isn’t very sensitive to the market’s movements as much as the others.
If you don’t have the spare time to watch the market every day, and you still want your stocks to make money without spending too much time monitoring, find stocks offering dividends.
Dividends are similar to the interests in a saving account in that you get payments regardless of the stock price. These are payments distributed by the company to its shareholders as a reward from its profits.
The board of directors decide the number of dividends. They are generally issued in cash, although it’s also common for some companies to use dividends in the form of stock shares.
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