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Here’s How to Research Stocks

August 26, 2019
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Tip of the Week

Research a company before buying its stock, using key metrics such as revenue, profits, and the price/earnings ratio.

2 min read

Buying the stocks of companies that interest you is a great way to start investing. But how do you know which companies might be better bets than others? It’s on you to do some research, and to look at some key numbers. Fortunately, that information is readily available.

Tactics and considerations:

It’s important to examine some key numbers to get an idea of how well a company is doing, these include:

Jargon Hack

What is 52-Week Range?

52-Week Range

The highest and lowest price a stock has traded over the course of the previous year.

Find out

Example:

In the third quarter of 2019, Acme Co. has $10 million in annual revenue. It reports net income of -$9 million, or a loss. It has a P/E ratio of 5, when the industry average is 20. The stock price is $8, when the 52-week range is between $8 and $50. A quarterly letter from the company’s CEO talks about ongoing litigation related to a faulty product, and a management shakeup that includes the departure of the company’s chief financial officer.

Though it’s important not to judge a company based on a single quarter, given the size of the loss, the low share price, and the CEO letter, something is clearly going on with Acme Co. It might be a good bet to avoid purchasing the company’s stock for now!

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By Stash Team

*This is a hypothetical example and is not representative of any investment.

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