As many investors who are seeking to invest in the stock market know, a company’s stock is a reflection of their current and potential future performance. However, as investors and owners of a company’s stock we don’t get the entire inside data that a company has, the only information that is given is what the company provides. How do we read this information so we can make wise investing decisions?
- P/E ratio
For new investors this ratio may seem like a foreign language, however it is better to view this as a math equation. The P/E ratio is the price of a stock that is divided it by the company’s net income. The higher the number of the P/E ratio the more expensive the stock becomes while the lower the ratio the cheaper the stock is, however when it comes to business, a cheaper stock isn’t always the best option because companies can disappear overnight and you will lose all of your investment.
- Dividend yield
Whether a company pays a dividend could be indication of the overall health of the company. This is also an important factor for those investors that are trying to make their money work a little harder or for those people who are trying to replace their current income. To give an example a company pays a 0.60 dividend every financial quarter; this means that for every share of their stock that you own you will receive $0.60 to pay out as cash or to reinvest. It is important to stay up-to-date on your purchased stock for if there is a cut in the dividend then it can be a sign that the company has become unhealthy.
Look at a company’s past revenue either by viewing their annual tax reporting known as the SEC 10-K or by using a third party website such as nasdaq.com. Determine if a company’s annual revenue is increasing or decreasing. If the revenue is decreasing that there is not a reason behind it such as a vast business expansion then stay clear from that company because it might be in a sign that the company’s stock will fall.
ROE means return on equity, this will give a viewpoint if the company is efficiently managing and producing a return for the owners of the company. You can view the ROE in the company’s annual financial reports, if the ROE has increased for two years in a row then the company is healthy and it is good to buy.
- Buy, Sell, or Hold
As an investor, it is always in your best interest to know what the professionals think of the stock. You may see in your searches that the professionals say to either buy, sell, or hold the stock. You are going to want to get several opinions and find an average opinion if a stock is good to buy. If you are working with a personal broker and they are suggesting a stock then do your own homework and keep a securities lawyer’s information should you receive poor recommendations.