Tips On How To Research And Evaluate A Company Stock

By Ronald Kimmons. May 7th 2016

Without research, stock investment can be little more than random gambling. Successful investors thoroughly research companies before taking action, and this research can come from various places and result from various methods. The following is a guide to help you research and evaluate a company stock that you are interested in.

Check The Charts

One way of attempting to predict a particular stock’s future performance is by looking at its past performance. Virtually all online trading platforms provide this information. Companies that have a long history of stable growth and performance will generally (although certainly not always) be less risky than those without this history. One of the clearest signs of danger is if a stock’s current price has occurred as a result of a sudden, uncharacteristic leap in value. Such a situation may result in a dramatic fall from which that stock cannot recover for some time. Keep in mind that past stock performance is not necessarily predictive of future performance.

Research The Industry

Sudden shifts in company stock values often occur as a result of events that affect that company’s entire industry. For example, if the federal government of the United States were to mull additional regulations on banks, this would affect the stocks of virtually every finance-related firm. Similarly, things like sanctions and environmental protection regulations can affect stocks in the energy industry. A sudden technological leap for one company in a particular industry may cause its stocks to rise and its competitors’ stocks to fall. To catch stocks when they are about to swing up and dump them just before they plummet, you need to watch for such industry trends. Stay up on these issues by frequently visiting Internet news sites that provide such information.

See Who Owns It

The fastest and easiest way for independent investors to research the viability of a particular corporation’s stock is to let someone else do the research for them. Online financial centers such as MSN Money provide information on the ownership of publicly traded corporations. Before buying a particular corporation’s stock, look it up on one of these sites to get an idea of who its shareholders are. It is generally a positive sign if institutional investors such as mutual funds hold a significant portion of the stock because these institutions make their investments only after considerable research. However, sometimes mutual funds get it wrong so it’s always a good idea to do your own research.

Verify Company Financials

Publicly traded companies are required to publish financial reports annually. You can find information from these reports – along with analyses of this information – on various financial sites. Look at items such as the balance sheet, statement of income, retained earnings and working capital. Breaking all of this information down, Internet financial sites issue grades for companies’ financial health. If a company has a particularly poor grade, it may be in real financial danger, and investing in it would probably not be a good idea.

Search For Company News

Look for news pieces relating to the company in question, such as its technologies in development, new products coming, possible purchases of other companies and intentions for expansion. If it has a promising new product in development, search for information on its previous product launches to see if the company managed to meet goals. If the company has a good track record for meeting goals and if the new product appears revolutionary and exciting, purchasing stock may be a good idea. However, if the company has repeatedly missed its goals in the past, its current goals mean little and you may not be able to count on them as signs of rising stock values to come.

Check Company Reviews

It may seem simplistic, but checking the Better Business Bureau may be a very good way of seeing how safe an investment in a particular company may be. Companies with good scores tend to make decent investments – especially if they are companies that rely heavily on interaction with the public. However, an F score from the Better Business Bureau often stands as evidence that the company makes a policy of being deceptive – and if company management lies to clients, investors should not expect dramatically different treatment. Web sites like Angie’s List and Yelp also provide a window through which potential investors can see the public’s perception of the company. If the company has developed a culture of distrust and poor customer service, this can affect business, and investors may need to be wary. And in addition to what consumer review sites and reporting agencies have said, look at what employees and former employees have said on sites like GlassDoor.com, where they can report their experience at the company. While disgruntled employees often do not mean weak stocks, if such comments reveal possibilities of corruption, dishonesty, and mismanagement in the corporate culture, this may bode poorly for the company’s future.

Keep these tips in mind the next time you are considering purchasing a company stock. They can help you to avoid potential lemons in your investment portfolio.

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