Before making any investment research, we should first conduct thorough research of those companies in which we are planning to invest.
We should try to invest in those companies whose stocks are not overpriced and are cheap so that we get benefited from their future profits.
To do so we need to conduct fundamental analysis. Fundamental analysis helps in finding the intrinsic or the fair value of the stock.
By getting the intrinsic value of the stock we can determine whether the stock is expensive or cheap.
After conducting the fundamental analysis, we do not find the right price to enter into the stock.
Let us discuss in details 5 Best ways to do Stock Analysis & Research:
1. Quantitative Analysis
Firstly we should do a quantitative analysis of the company.
By quantitative analysis, we mean analyzing the financials of the company.
Before investing in any company, we should check how the company has performed in the last 5 years.
For this, we need to analyze the financial data that is available in the company’s annual and quarterly reports.
There are certain ratios that help us in knowing whether the company‘s performance is improving or not.
Some of the ratios which an investor should analyze are:
- The growth rate of the dividends, revenue, earnings, and so on.
- Dividend Discount model if you want to invest in those companies that give regular dividends.
- Debt Equity Ratio helps us to know how much debt the company is in.
- The price Earnings Ratio calculates the current market price with the Earnings per Share.
- The net profit margin that helps in finding the profitability of the company.
After doing the quantitative analysis of the company, we should next do the qualitative analysis.
2. Qualitative Analysis:
Secondly, we should look at the qualitative part of fundamental analysis. By qualitative analysis, we mean analyzing the management of the company.
Management is a group of people who are responsible for running the company.
There are certain qualitative that an investor should check before investing in the company like Promoter’s shareholding, the salary of the management, background check of the managers, how efficient they are in running the company, and so on.
This is an important step when analyzing the company, as the company is run by the management only.
3. Industry Analysis:
The investors need to analyze the other companies that are part of the same sector of the company in which they are planning to invest.
For this investors can do a Strengths, Weakness, Opportunities, and Threat (SWOT) analysis of the company.
Investors can research what are the internal strengths and weaknesses of the companies.
Investors should also research what are the opportunities and threats given by the other companies in the sector to the company in which they are planning to invest.
This SWOT analysis helps the investors to get a comprehensive idea about the company.
4. Values and Ethics
Apart from conducting qualitative and quantitative analysis of the company, one should check whether the values and the ethics of the company are aligned.
There are certain promises and proposals of new projects which the management of the company makes in their conference calls.
The investors should check whether the projects are completed in the future as it will help the company to grow.
If the company grows, then the shares of the company will perform better in the future.
5. Technical Analysis
After conducting fundamental analysis which is mainly the background check of the companies, one should decide when to take a position in the stock of the company in which they have decided to invest.
To do they need to learn the basics of technical analysis and use it.
Technical analysis helps in predicting the future price movement of the stocks on the charts.
There are technical tools and indicators that help the investors to know whether it is the right price to enter the stock.
It helps the investors to know if the stock of the company in which they have decided to invest in is the overbought or the oversold region.
With the help of technical analysis, investors can take the timely decision of entering or exiting the stock.
As we have discussed above fundamental analysis helps in choosing the right company to invest in whereas technical analysis helps us in selecting the right price to enter into the stocks. Investors should take their investment decision after conducting fundamental analysis of the stocks as they are investing their hard-earned money. They should not rely on the other recommendations for investing but conduct their research as everyone has different financial situations. Without researching and analyzing, investors tend to make losses from the stock market.