11 Watch Before Buying Stocks
For new investors, it is necessary to know some information regarding particular stocks. Selecting a range of stocks and buying the right stock at the right time is not an easy task. But here are the most important elements that you should watch before buying stocks in the secondary market.
Following are the points that investors should watch before buying stocks:
1. Companies Details
Listed companies in the stock market are classified on the basis of their nature of work and activities. Companies established date, Company’s locations, and branches. What is the company objective? What are the company strategies, What do they produce and sell? Company capitalization, companies investments, the overall profit of the company, companies assets and liabilities, company’s performance speed, growth, and diversification, and so on.
2. Company’s core business.
Investment companies have to earn from investment projects, trading industries have to earn from selling their core products or services, hotel industries have to earn from hospitality and services, hydro companies have to earn from selling electricity, banking and financial industries have to earn from deposit and interest, insurance companies have to earn from premium and many more. A company has to earn from its core business.
3. Management teams and owners of the Company
The management team is known as the human resources of an organization. Good management is effective and efficient that produces better results in terms of profit, growth, sustainability, and future prospects of a company. Owners are also important for a company while stock valuation. Good owners put pressure and control on the management teams of the company so that company can obtain better results. The whole point of having good management and owners is to obtain wealth maximization. So, that the stakeholders are also happy with their returns. If owners are not loyal they only care about the profit of the company and capital gain on their stocks.
4. Profitability and PE ratio
Profit is the lifeblood of a company without it a company cannot run and give returns to the stakeholders. The aim of every organization is to earn a profit (i.e except non-profit organizations). Loss companies cannot provide any returns to their stakeholders. The proportion of profit is distributed among stakeholders. The higher the price earning ratio the more investors are attracted to the companies stocks. Fast-growing companies may have a low P/E ratio but can provide better returns in the near future.
5. The volatility of the Stock
The volatility of the stocks is known as the change of the price or moment of the price change. High beta or risky or high volatility tends to swing more than low beta, low risk, or low volatility stocks. According to the volatility or beta of the stock, investors and traders are attacked. Traders prefer high volatility stocks and as per investors, they prefer fundamentally strong companies stocks.
6. Historical Graphical Chart
Historical Graphical Chart is the representation of the price movements of stocks. It is related to technical analysis which provides you with the stock data. Candlesticks are formed by market sentiments and it shows you the lowest point to highest point, entry point to exit point, and many more. A graphical chart is used by both fundamentalists as well as technical.
7. Past Performance of the Company
Companies’ past performance is also important for stock valuation. The performance is related to the overall results of the organization. A company must develop and should achieve more goals and objectives than last year. Growth and development are also measured with performance, A company must outperform its competitors. The ability of performance also determines the value of the company and its stocks.
8. Dividend History
A dividend is a return, given to its investors. It can be in cash as well as a bonus share. A company has the choice to provide or not to provide dividends to its shareholders. According to the dividend history, investors evaluate the stock price and are willing to bet up to a certain price in the stock market. The higher dividend provider company’s stock is traded at a higher price.
9. Balance Sheet of the Company
On the balance sheet, we can have the asset and liability sides. Over there we can see the overall performance of the company. The balance sheet provides information to investors. The balance sheet depends upon the nature of the company. For example, a bank assets side contains cash, derivative financial assets, loan and advance, investment securities, and so on. Similarly, on liabilities side contains due to banks, borrowings, deposits from customers, debt securities issued, other liabilities, and so on. The balance sheet is the basic and most fundamental thing for investing.
10. Fraud or Scam cases
Fraud or Scam cases of the company have a long-run impact on the stock market as well as the reputation of the company. Before buying stocks one must be careful with the fraud or scam cases. Mainly it happens due to money laundry and financial number manipulation. Therefore facts and figures must be cross-checked on the balance sheet.
11. Value of the company
A company’s net worth is important before buying stocks. Companies have intrinsic value also. Experienced investors and traders set their eyes to find the intrinsic value of the company. The value of the company is the key indicator for investors to value the price of the stocks.
In Conclusion
The stock market is always dynamic and stock price always fluctuates. But the market is always at equilibrium because buyers always get the stocks at the betted price and the seller always sells the stock at the set price. Investors must track the stocks which are in their portfolio and keep updating themselves regarding the market. Investors can decrease the risk if they are well informed about the stock. So investors always have to be careful and watch these components before buying stocks.
