Researching a stock is a lot like finding your dream car. You can make your decision depending on technical specifications. Still, it is also crucial to consider how comfortable you are when riding, the reputation of the company and whether it gives excellent mileage or not. Investors have a name for this kind of stock research, and it is called fundamental analysis. Stock research can help evaluate a stock and decide to weather it can be a part of your portfolio.
Before proceeding further, we must know what fundamental analysis is? Fundamental analysis means looking at a range of factors like the company’s fundamentals, financials, leadership and team competition. Before we dive into these four steps you must know that stocks are considered as a long term investment because they carry a small amount of risk, it takes time to increase the value of stock and get benefit from long term gains. It means you can invest your money with low risks if you don’t need your money after a short period. Given below are four vital steps that can help you in finding a stock that deserves a stop in your portfolio.
- Gather your equity research material:
You can begin by reviewing the company’s financials. This type of approach is called quantitative research, and it begins with the documents which are required to file with the exchange commission by the company.
- Form 10-K: An annual report that contains vital financials of the company. In this, you can view the company’s balance sheet, sources of income, its revenue, and cash flow.
- Form 10-Q: A quarterly update on financial and operations results.
Sometimes you are short on time, and you are not able to get through these documents. In this case, you can find the above filling and important finials at your equity research services website. With the help of these figures, you can compare a company’s performance with other companies.
2. Concentrate on important aspects:
These types of reports contain a ton of numbers, and it is easy to get diverted from your primary purpose. Given below are some crucial elements which will help narrow your focus and can save a lot of your time.
- Revenue: It is the amount of money brought by the company during the specified time. It is the first thing you will see on the financial report, and this is the reason why it is referred to as the “top line”.
- Net income: It is the bottom line figure because it is mostly listed at the end of the statement. It is the total amount of money made by the company after paying its expenses and taxes.
- Price to Earning ratio(P/E ratio): When you divide the earnings by the number of shares available to trade, you get earning per share. With the help of this number, you can get the company’s profitability on a per-share basis.
- Use qualitative research:
If the quantitative analysis reveals the financial conditions of a company, qualitative research helps you in finding the accurate picture of its operations and fundamentals. Once Warren Buffet quoted – “buy into a company because you want to own it not because you want the stock to go up.” It is because when you purchase stocks, you buy a personal stake in the company business. Given below are questions which can help you decide which company you want to own.
- How does a company make money?
- Does this company have any competitive advantage?
- Is the management of the company profitable?
4. Do some research into context:
You can see that there are many metrics and ratios investors can use to access a company’s financial ability and calculate the value of the stock. But looking at the economic conditions or revenue or income from a previous year or the recent decisions paints an incomplete picture. Before buying any stock, you want to build a well-informed report of the company and decide whether it is worthy of including it into your portfolio.
Finding the best stock for your portfolio can be confusing and include some risks, but with the help of equity research services and following the above steps, you can find a good fit for your portfolio.