How to Value Stocks
Learn to Value Stocks like Experts – Here’s How
Have you been thinking of entering into the stock market lately? Congratulations, and all the best! Some people will tell you that this isn’t a good time to enter the market because the economy isn’t in great shape, and the businesses are not exactly roaring. But we don’t agree with this. We ask, what has that got to do with you? Are you in love with a company, or do you just want to make some good money from the market? If you are like most people, then you should just care about your financial prospect, and nothing else. And let us give you this assurance. You can certainly make a killing, even if the market itself is in deep coma.
There’s just one thing you must do right – and that is, you should be able to value a stock correctly. That’s because, if you have the capability to properly value a stock, then you will always pick the right stocks at the right time.
You see, the stock prices will always fluctuate, whether the economy is in great shape or not. So if you can value the stock right, identify swings and market trends, and detect the right time to invest (when the price is all set to shoot), you will certainly make a lot of money. Yes, it’s not easy. But it isn’t that difficult as well.
Here’s the Reality That You Should Always Remember
Anytime is good time in the stock market, and anytime is bad time for the poor decision maker.
So How Do You Value a Stock?
The valuation of a stock is a scientific and a systematic process. In other words, you have to pick one at a time, and go through a process. So here’s how you can do it.
• Select a stock that has been in the news recently. Or you can also select the leading stock from a sector that has been doing well.
• Now do some research about the company. Check the company’s balance sheet for the last 3 years (this should be available easily), and see whether the company has been profiting consistently or not. Also check to ensure that the profit figures are going up consistently year-to-year.
• Check the profit margin of the business. A good company should have a decent margin.
• If the company gives dividend, check the percentage of profits that has been distributed as dividend, and how much it comes to per stock.
• Check the EPS or the “Earning Per Share”.
• Check the “Return on Average Equity”.
• Check the trading volume. A higher volume means more stocks are being traded in the market. This shows that there is an inherent demand in the stock.
• Find out the historic high of the stock, and when it reached that level. Have the stock reached anywhere close to it in the last 6 months?
• Find out the future growth plans of the company.
• Do some research about the competitors and the threat areas of the business.
Once you have found out all this, you should be able to decide whether the stock is a good buy or not at the current price. If you are convinced it is, then go for it. If you are not, then look elsewhere.