How to Analyze Stocks (For Beginners)

If you are a beginner in stock market investing, then you need to learn how to analyze stocks or shares. To decide on which company to invest in, you need to take a look at how well the company is doing now, how it has performed in the past, and what it is planning to achieve in the future.

Following are some useful tips for analyzing stocks:

1) The first thing you need to do is to find out what the company is doing, its businesses and its industry. Does the company diversify its business range and offerings? What industry it is in or what product or service it provides? Nowadays, many companies are diversified into multiple business units and do more than what you know.

2) Calculate the market capitalization: You need to learn how to calculate market cap of individual stocks. This is a measurement of the size of a business enterprise, and is calculated by multiplying the shares outstanding by the share price. In general, larger companies are considered safer investments, while smaller companies offer more growth potential.

3) Analyze valuation ratios: You need to find out the price/earnings ratio (the ratio of the market price to the earnings per share), the price to sales (the ratio of the share price to the annual sales), and other financial ratios/data from the company. You also need to understand the profitability ratio of a company and compare these numbers with those of other firms in the same industry.

4) Finally, you need to decide which stocks are good buys and which are not. One rule of thumb is that the PEG (Price/Earnings To Growth) ratio should be less than 1, which indicates that the stock is undervalued. It is also important to do some research and find out what professional analysts are saying about the stock because they spend a lot of time analyzing the finances of the company in great details.

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