Stock evaluation doesn’t have to be overwhelming. Many people shovel money into a brokerage firm and let them figure it out. But what if you want to get a bit more involved?
With a bit of research, you can take control of your money and choose some companies to invest in on your own. All it takes is a few basic factors, and you will be on your way to being a sharper investor.
So, let’s delve into the basics of stock evaluation so you can see what it’s all about.
The Two Types of Stock Analysis
We’ll start by looking at the two primary analysis types before investing in individual stocks.
This method of analysis assumes that a stock’s price doesn’t necessarily reflect the company’s actual value. You use other valuation metrics and information to determine if the current price is a bargain.
This strategy is excellent for long-term investors who want to hold a stock for ten years or more.
Technical analysis assumes that a stock’s price represents all available information and that it will move with trends. Reading charts and their patterns is essential in technical analysis.
Many investors use this analysis to predict which direction a company might go in short term.
How to Research Stocks
So, how do you get started? Here are the first things to consider as you dive into stock research.
Find Your Focus
There are thousands of stocks out there and almost a dozen sectors. You can dive into finance, healthcare, consumer goods, energy, big tech, industrial products, etc.
You want to whittle things down to one or two sectors, which keeps you from being overwhelmed and helps you assess a company’s competition more quickly.
Use Qualitative Research Factors
Know the company. This mindset borrows from an old Warren Buffett adage, and it rings true if you want to become a shareholder in a business.
You should know what they do or produce and how they make money. It is also good to know who runs the company, their directors, leadership track record, and how they invest in the operation.
Use comparison charts to compare the company’s short- and long-term performance against the competition and the overall market. What causes dips and drives rallies?
Gather Data from Tools and Reports
There are quarterly reports, earnings figures, sector and market trends, and news from everywhere. You could spend your entire day trying to digest it all.
Luckily, this is the tech age, and all sorts of tools and apps can help you collect information on a company. A quick Google search for financials and news, paired with the dynamic stock charts in StockMarketEye, will get you started on the right foot.
How to Evaluate Stocks to Buy
There are a few critical indicators in picking a good stock. The following are some fundamental ratios to assess the value of a company and if it may be a good time to buy.
Price-To-Book (P/B) Ratio
The P/B ratio is essentially the assets of the company minus its liabilities. This one is the bare-bones indicator of a company’s worth and effectively represents its value if it gets sold today.
Anything of value goes into the price-to-book ratio, such as physical equipment, buildings, land, and other assets like stock holdings and bonds.
It is a helpful factor because companies in major industries may decrease in growth but are still valuable in terms of assets. A low price-to-book may mean the stock is undervalued and worth a second look.
Price-To-Earnings (P/E) Ratio
Investors and analysts give the P/E ratio a lot of attention as a good indicator of company value. The formula is simple; if a stock trades at $20 a share and has earnings of $2 a share, the P/E ratio is 10. That’s the share price divided by earnings per share.
There are trailing P/Es that experts use to compare past performance and forward P/Es to help project the future. Value investors like a low P/E ratio.
Price-to-Earnings Growth (PEG) Ratio
The PEG ratio considers the past growth rate of a company’s earnings. It is the P/E ratio from above divided by the year-over-year growth rate of earnings.
The PEG is an excellent way to compare competitors and a great way to assess low-priced or penny stocks. Analysts like a stock with a PEG ratio below 1.00 because of its growth potential. But it is very speculative since there are no guarantees.
Everyone likes a little money back on investments from time to time. Dividends are periodic payments companies make to stockholders to share their profits.
Some investors look for high dividends as a sign of a healthy company, but inconsistency could be a red flag. When looking at a prospective stock, check if the dividend payments have increased or decreased year over year.
Assigning Value to Stocks Helps You Choose What to Buy
If you take all of these factors into account, you’ll have a good idea of the value of a stock. This research aims to help you feel confident about your next investment decision. You may even get a picture of a stock’s future, but nothing is certain.
Can You Find A Sure-Fire Winner?
While this is stock research 101, we hope the above factors will give you a jumping-off point and help you build your portfolio.
Of course, you can still pay that broker to manage some of your investments. Still, maybe you’ll feel more confident buying an individual company with a bit of your budget.
With StockMarketEye, you can import the portfolio from your broker and track all your individually researched stock picks against it. Can you beat their average return?
Some companies are like forbidden fruit to investors. They are out there doing great, but you can’t have any. You may have bought their product or used their service and thought, what an outstanding stock to buy. But, lo and behold, they aren’t even listed on the exchange because they are privately owned.
Let’s look at some of these highly coveted private companies that everyone wants to go public, their background, and whether or not there might someday be an IPO.
What is a Stock IPO?
An IPO is an initial public offering or when a company goes on the stock market. It is a bit of a gamble because once they hit the market, it’s up to the investors of the world to determine the value of a share.
It may seem like they are sharing their wealth, but usually, they go public to share the expense. In other words, they want to raise money to grow, and they know that crowdfunding from the stock market is an excellent way to do that.
Top 8 Companies Investors Want to See on the Stock Market
Here are eight high-flyers we wish would hit the market and let us all grow together. Remember, some companies may have already run their course in growth, so their shares could open at an inflated price.
Blue Origin Stock
This company is known for its high-profile excursions in the commercial spaceflight industry. It is also known for its founder and chief owner, former Amazon boss Jeff Bezos. In fact, Bezos used some of the billions from his Amazon stock sales to finance Blue Origin.
Blue Origin hopes to battle Elon Musk and SpaceX for control of the universe, and it is hard to tell if and when either will need public money to continue.
Bezos has ticket sales to help him out. It’ll cost you upwards of $200,000 to hop a ride into space on a Blue Origin flight. All that engineering expertise and materials for space exploration cost a lot, and Bezos may eventually need more outside funding to keep moving forward. Blue Origin is currently estimated to be worth around $3 billion.
This Chinese-based video-sharing and social networking company has taken the world by storm in recent years. It now has more than a billion users. People love TikTok for its various categories of short, entertaining clips.
TikTok’s owner, ByteDance Ltd., already had plans to launch a standalone IPO. That idea got bogged down in the US-China data access wars.
Until those complicated issues are resolved, TikTok and ByteDance will remain private. TikTok generates nearly $20 billion annually through advertising and in-app sales of virtual coins.
This supermarket chain has grown steadily since its founding in 1930, now operating nearly 1,300 stores in seven southeastern-US states. The wide variety of goods and unique services brings quarterly sales of about $13 billion.
Publix is operated by the descendants of George W. Jenkins, who founded the company in Florida. They are the primary owners, but they do sell shares to their 230,000 workers. The stock is worth around $15 a share if you want to go to work there.
The Jenkins family does things their own way, the company carries little debt, and they buy or lease new properties with cash. Don’t look for Publix to go public, at least for another generation.
If you’ve ever cruised by a Chick-Fil-A during peak hours, you know about the traffic problems caused by the long lines at their drive-throughs. Why? People love fried chicken filets on a bun, and that’s the highlight of the relatively simple menu at this fast-food operation.
They have more than 2,800 restaurants and more than $11 billion in annual sales.
Chick-Fil-A is another family-owned business that has its own way of doing things. Before his death in 2014, founder S. Truett Cathy had his children sign a contract keeping it a privately-held company. So, don’t expect an IPO anytime soon.
This photo and video-sharing app platform has gained steam in social media since its founding in 2010 and now has more than a billion users. It was kickstarted with private funding and now carries ads as part of its revenue stream.
In its early years, Instagram grew so fast that in 2012 it flirted with becoming an IPO. But Facebook swept it up for $1 billion in cash and stock to quash that notion.
You can still buy stock in its owner, Meta Platforms, which is currently going for around $90 a share.
One of the biggest names in the fast-food business, Subway has had its ups and downs since its founding in Connecticut in 1965. It began franchising in the ’70s and, at its peak, had around 33,000 restaurants.
Profits fell and caused Subway to sell more than 10,000 restaurants. They still generate more than $1 billion a year in revenue.
Founder Fred DeLuca’s family owns The Subway Group. This complex operation has intellectual property, franchising, software, and advertising in smaller companies under the same umbrella. The DeLucas currently have no plans of putting Subway on the stock market.
Sephora is a retailer of personal care and beauty products that was established in France in 1970 but took flight in the 1990s with international expansion.
Sephora came to the US in 1998 and currently has more than 2,600 stores carrying around 340 brands, including their own line. It has an annual revenue of more than $10 billion.
Sephora is a subsidiary of the luxury goods conglomerate LVMH, which is a multinational holding company that trades on the over-the-counter (OTC) markets. That means you can invest, but you’ll have to go through a brokerage that trades internationally.
IKEA is a Swedish home furnishings company that has grown into a retail beast with more than 400 stores in 50 countries. It is known for its ready-to-assemble furniture, kitchen appliances, home accessories, and, yes… those delicious meatballs.
They generate over $44 billion in annual sales through their outlets and a thriving website with more than two billion visitors yearly.
The IKEA Group is owned by INGKA Holding B.V., another complicated, multi-faceted operation that remains private and consistently reinvests profits. Currently the world’s largest furniture retailer, IKEA plans to survive without the help of market investors.
What Builds the Anticipation for IPOs?
When a company prepares to go public, it’s common knowledge. They have to go through a checklist with the Securities Exchange Commission (SEC) and hire lawyers and underwriters as part of the process. Plus, they generally gin up interest in the company through public relations or marketing.
The underwriters set an IPO price, and then it is up to investors to research the company’s history, growth, competition, and other factors. The business may be established, like the companies we listed, or could be a newcomer with only a little history building hype with their product or exceptional innovation.
Keeping an Eye On an IPO
A good strategy is to keep your eye on new IPOs and let them settle. You have to assess factors that offer potential, and if you put money in right away, cross your fingers and hope. The price can fluctuate over the first few months as investors move in and out.
The best way to monitor a new stock is to feed it into StockMarketEye’s watchlist feature and let the software keep up with all the info you need to make a decision. Get started with a 30-day free trial now and know precisely when to pull the trigger on the next big IPO.