One of the basic, but no less important rules of stock picking is researching stocks before you choose to invest in them. Part of smart investing is knowing what your paying for, which is why the GorillaTrades stock investing system doesn’t just tell you what to buy and when. It also helps you build and manage your portfolio, offering complete company profiles with each stock pick, along with trading tips based off of the stock’s tendencies.
Ultimately, the GorillaTrades system teaches you how to be a better analyst. If you’re not as familiar with the intricacies of stock investing, or you consider yourself a beginner stock investor, these tips on researching stocks can better inform you when it comes time to start building your portfolio. Most of all, they’ll help you get a solid “background check” on the companies you’re investing in.
Outlining the basics of stock research typically falls into two categories: quantitative and qualitative. The first we’ll cover here is quantitative research, which covers the financial facts about a publicly traded company that are filed with the U.S. Securities and Exchange Commission (SEC). This kind of information is easily accessible to the public for trading purposes, and there’s a lot of it to sift through. The major things you want to look for are:
Form 10-K:
The annual report that has to be filed with the SEC. It details audited financial statements and provides information on how the company makes and manages its money, its expenses, and its income. You should be able to get financial information stemming backwards of five years from these statements.
Form 10-Q:
Filed quarterly, this form provides unaudited updates on financial statements, and information that’s more current about how the business is being managed, how market volatility may affect it, and other tips about the company’s internal affairs that may prove useful to you as an investor.
Revenue and Net Income:
Revenue, of course, is how much money the company brought in total, during the time specified on the report. The net income is how much money was left after expenses, taxes, and whatever other costs are involved in running the company.
Earnings Per Share (EPS):
This one’s pretty straightforward. EPS is the earnings divided by the number of shares that are tradeable. You can compare companies’ profitability on a per-share basis this way, and determine which one may be more lucrative, quantitatively.
Price Earnings Ratio (P/E):
You can assess the P/E by dividing current stock price by the EPS, or earnings per share. Because this ratio is really only measured in the short-term, it’s not a particularly reliable figure on its own. But it’s good to keep it in mind along with your other financial data.
Return on Equity (ROE) and Return on Assets (ROA):
ROE is the profits made by every dollar invested by shareholders, while ROA is the profits made by every dollar of the company’s own assets. This tells you how good a company may be in generating profits.
Now that we’ve established key points about qualitative, let’s talk about qualitative research. In order to get a more comprehensive idea about the company you might invest in, you can shade in the details not covered by the financial aspects. This includes:
Analyzing the company’s industry. What makes a company successful in that particular market, and how is the company you’re researching positioned against its competitors? Think about how a juggernaut corporation like Disney decided to compete with the likes of Netflix, Hulu, and Amazon by creating a streaming service of its own, and already has more than 10 million subscribers. Think about how Slingand Philo are doing by comparison.
Consider the company’s target market, and where it gets most of its revenue. Try to analyze where the company may be falling short in its market, so you can start to anticipate potential losses and avoid those potholes if they come. But also identify where a company shows growth and adaptability to changes in the market place.
Consider your own values in comparison to how the company runs. “Buy into a company because you want to own it, not because you want the stock to go up,” as Warren Buffett said. Remember that you are investing in its success just as much as your own.If you don’t agree with the ethics and values in a company, you probably shouldn’t be giving them your money just because they look like the right horse to bet on.