With the recent boom of online trading, anyone can start stock investing from the luxury of their own home. It is important, however, to thoroughly research and understand a stock before purchasing it.
Five important elements to keep in mind when considering purchasing a stock:
Do research online. Read news article and find knowledgeable websites. Check out your favorite financial website (Google, Yahoo, Msn). Look at the stock tables and other relevant information to keep you up to date on the latest trends in any given company.
You can go to the NSE and BSE website and find the company’s latest 10-K. This is an annual report all public companies are required to file with the SEC. It has detailed information on the company’s overall health.
To thoroughly research a stock, you should also take into consideration the company’s business plan, recent news concerning the company, its competition, and the statistics the make up the stock’s fundamentals. You can use these statistical patterns and other measures to predict a stock’s potential growth.
Get a free copy of the company’s corporate financial statements that are filed with the Securities and Exchange Commission. Analyze these quarterly statements for a two or three year time span. Take note of the trends in its earnings per share and revenue. Watch for consistent growth in the earnings per share.
A high PE ratio means the market is optimistic about the future growth of the company. It shows how much a company is earning each year per share. The average PE ratio is around 13 or 14. Below that average is considered low and above is considered high. Also compare the PE ratio with the company’s competitors. If it is significantly higher or lower, this is something to take note of.
Be on the lookout for the company’s debt and cash flow. Low debt and a positive cash flow is a good sign for a company. Learn also about the company’s debt/equity ratio. If it is greater than 1.00 it means it is a riskier stock.
Avoid impulse buying. It is risky. With online stock trading, the temptation is even greater since it is so easy to do.
Researching before stock investing is a fundamental step to successful online trading.