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Stock Analysis Criteria- Beginner’s Guide

Stock Analysis

Stock analysts evaluate trading instruments, the market, and different investment sectors. They do this to determine the viability of investing in particular areas in the stock market.

The job requires dedication and commitment. You need a curious mind and should not be afraid of research. Any decisions should be data-driven. It is critical to give proper advice to traders and investors.   

If you want to get into this career path, please read on. We will share a beginner’s guide in our article below.

1. Top Analysts Use Available Resources 

The digital space has opened up tons of resources for stock analysts. There are platforms where analysts provide forecasts.

Most are beginner-friendly and aim to make trading simple. It reduces the hassle of picking the right stocks to buy. The analysts have put together information on several things. These include stock ratings, stock price targets, and stock rankings.

The experts give advice on top-rated stocks and those with upside potential. Stock analysts get all the resources they need, thus simplifying the research process.

You also get aggregate assessments from some of the top Wall Street analysts. It ensures that whatever option you pick is sure to give you some ROI. You can save time and effort if you outsource stock analysts from platforms like Wallstrank. This way, you can focus more on learning how to become a professional stock market analyst.

2. Understand the Different Types of Stock Analysis 

There are some basic types of analysis you need to be comfortable with. These are: 

  • Fundamental analysis evaluates stocks by measuring their actual value. The analyst must understand the economy and market conditions. He also looks at factors like financial strength and the management structure of the companies. The job entails closer scrutiny of factors like liabilities, expenses, and assets.

The analyst will recommend investing in stocks only after looking at the health of the company. It is a fantastic tool that considers several factors. Such include price-to-earnings growth, price-to-earnings ratio, and dividend yields.  

  • Technical analysis focuses on historical patterns or trends. The analysis takes into consideration factors like volume and stock prices. The focus is not on the actual stock value. Rather it is on patterns or trends that could impact the stocks in the future. Analysts may for example recommend cashing in on momentums around stocks or markets.  
  • Sentiment analysis is also finding a place in stock evaluation. The analyst looks at how the public perceives a company. Poor perception of a company can undermine the stockpile. Factors like political and market situations may have a role to play.   

Deciding on the best method depends on the analyst. Some will incorporate the two methods for better decision-making. Others will use one depending on what area of analysis they are focusing on.

Technical analysis for example is a better method for looking at short-term investments. The analysts only need to focus on data from short periods.                                                         

3. Understand the Different Metrics of Stock Analysis 

There are different metrics that beginners need to get comfortable with. We have mentioned some of them above. Now, let’s see what they mean.

  • Price-to-earning (P/E) ratio is the result of dividing market value per share by earning per share. Knowing the P/E ratio has several benefits. First, it is an excellent tool for comparative analysis. This is because it shows the value of the company stocks, allowing for competitor comparison. Secondly, the analyst can determine how much the market will be willing to pay for the stocks based on future or past earnings. Finally, it provides insights into overvalued or undervalued stocks. High P/E values could be indicative of overvaluation.
  • The price/earnings-to-growth ratio (PEG) focuses on projected growth. The analyst divides the P/E ratio by the expected earnings growth rate. Let’s take the example of a P/E ratio of 30 and a growth rate of 15%. The PEG will therefore be 2.0. The metric is excellent for industry comparison within different business growth cycles.  
  • Return on equity (ROE) looks at how well the company is using shareholder equity to make a profit.  Like in the cases above, ROE is excellent for comparative analysis.  
  • The payout ratio is the annual company’s dividend rate divided by earnings. The metric provides a fantastic way of knowing the stability of a company. A very high payout ratio can be indicative of less stability in future dividends.  

There are tons of other metrics beginners need to know. Once again research and a hunger for knowledge are critical for stock analysts. Take the time to research and understand all the stock analysis methods and metrics.  

4. Learn Some Trading Strategies 

Smart stock analysts have a couple of tricks up their sleeves. They will recommend the best trading styles, depending on the market situation. Some include:

  • Day or active trading means buying and selling stocks all in one day.
  • Value investing is a trick made popular by Warren Buffet. He invests in the company, rather than the stock prices. Such investors buy undervalued stock but base their decision on the potential they see in the company. They see the intrinsic value in such stocks and capitalize on them later.
  • Contrarian philosophy is ‘rebelling’ against market sentiment. It means avoiding the stocks everyone else is buying and going for those that are not moving. They will then sell when the time is right.
  • Swing trading takes advantage of price volatility at the end of trends. The traders swoop in when the new pricing is yet to establish itself.
  • Momentum trading means buying rising shares, and selling them when they peak. The trick is to offload before the shares start to lose value. It is a short-term strategy that requires a high level of skill. Entering or leaving at the wrong time can lead to a loss of money.  

Final Thoughts

Stock analysis is an interesting career path. There is something very exciting about making money by understanding the market conditions. As a beginner, it helps to have an unquenchable thirst for knowledge.

The research will be a daily part of your life. Staying up to trends and taking advantage of them is critical.

We have outlined some steps in stock analysis. But there is so much more you need to learn and explore. So, put on your inquisitive hat and get researching.


More on this topic:

Five Steps To Help You Buy Your First Stock

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