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Sri Lanka Equity Forum » Stock Market Talk » How to Choose a Stock

How to Choose a Stock

Go down  Message [Page 1 of 1]

1 How to Choose a Stock on Sat Jan 12, 2019 9:35 pm

ruwan326

ruwan326
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
How to Choose a Stock Rolling Eyes Rolling Eyes Rolling Eyes
 
 
 
 
1.Consider price and valuation.
 
Investment pros often look for stocks that are "cheap" or "undervalued." Generally, what they mean is that investors are paying a relatively low price for each dollar the company earns. This is measured by the stock's price-to-earnings ratio, or P/E. (calculate it yourself by dividing a company's share price by its net income.) Very roughly speaking, a P/E below about 15 is considered cheap, and a P/E above 20 is considered expensive. But there's more to it than that:
 
 
 
 
2.Know what kind of stock you're talking about. 
 
A company that's expected to grow rapidly will be more expensive than an established company that's growing more slowly. Compare a company's P/E to other companies in the same industry to see if it's cheaper or more expensive than its peers.
 
3.Cheap isn't always good, and expensive isn't always bad. 
 
Sometimes a stock is cheap because its business is growing less or actually slowing down. And sometimes a stock is expensive because it's widely expected to grow its earnings rapidly in the next few years. You want to buy stocks that you can reasonably expect will be worth more later, so look at value combined with expectations for future earnings.
 
 
 
 
4.Evaluate financial health. 
Start digging into the company's financial reports. All public companies have to release quarterly and annual reports. Check the Investor Relations section of their web site, or find official reports filed with the https://www.cse.lk/home/market. Don't just focus on the most recent report: What you're really looking for is a consistent history of profitability and financial health, not just one good quarter.
 
5.Look for revenue growth. 
Anything can happen day to day, but in the long run, stock prices increase when companies are making more money, which usually starts with growing revenue. You'll hear analysts refer to revenue as the "top line."
 
6.Check the bottom line, too. 
The difference between revenue and expenses is a company's profit margin. A company that's growing revenue while controlling costs will also have expanding margins.
 
7.Know how much debt the company has. 
Check the company's balance sheet. Generally speaking, the share price of a company with more debt is likely to be more volatile because more of the company's income has to go to interest and debt payments. Compare a company to its peers to see if it's borrowing an unusual amount of money for its industry and size.
 

8.Find a dividend. A dividend, a cash payout to stock investors, isn't just a source of regular income, it's a sign of a company in good financial health. If a company pays a dividend, look at the history of their payments. Are they increasing dividend or not?

2 Re: How to Choose a Stock on Thu Jan 17, 2019 10:04 pm

ruwan326

ruwan326
Senior Vice President - Equity Analytics
Senior Vice President - Equity Analytics
1.Don't buy on price alone. 
Don't assume a stock is a bargain just because its price has dipped 10%. Make sure you understand why and how that price is going to rebound.
 
2.Don't rely too much on analyst recommendations. 
Analysts' reports can offer some great information on the health of a business, but be aware that they tend to be biased for 'buy' ratings. But because of that bias, a sell rating, especially a new sell rating, from an analyst can be a red flag. Keep an eye out for those calls.
 
3.Don't be surprised by volatility. 
An individual stock is always going to be more volatile than a diversified mutual fund. Look at the 52-week highs and lows for stocks that you're interested in to get some perspective on how widely prices can swing within a year.
 
4.Don't forget to sell. 
Of course, you should have a plan for how you approach buying stocks, but it's just as important to know when to sell. Have a set of criteria that will tell you it's time to sell: If the company cuts its dividend; if the price rises or falls to a certain point; if an analyst downgrades the stock, and so on. Having a plan for selling will help you avoid selling out of panic over a short-term move in the market. A plan for selling can also help you take your gains.

3 Re: How to Choose a Stock on Fri Jan 18, 2019 12:00 am

charithaa


Senior Equity Analytic
Senior Equity Analytic
good one mcng

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