Tips for Researching a Stock Before Buying
A good return on investment, or ROI, means a company is being run
Hi, I'm Brad Meehan and today I'm going to tell you how to research stocks for About.com. There are thousands of stocks available to the consumer, but how in the world are you supossed to pick the right one?It all starts with a little bit of research, but there is no way that a person can go through every balance sheet out there. So they must narrow down their choices based on the kind of portfolio that they are looking for. You can narrow down your stocks based on what will and will not work for you. Next, you need to pay attention to what is going on around you. What companies do you see on every corner? What stores are closing down again? Watch the news for information about mergers, bankruptcies and other big events that affect the market.One way to check out a stock is to look up exchange traded or ETF stocks. You can find these online. These will be made up of larger domestic companies, but it's a great place to start. Check out articles and blogs and other resources online, you never know where you might pick up a good tip. Be careful, though, because not all information is accurate. You want to go through it thoroughly, do your research before you put your money into anything.Once you've done your research, it's time to get out the balance sheets. This is a paper that summarizes what a company has as far as assets, liabilities and shareholders' equity, and do some basic financial statement analysis. This is a way to check out the past, present and future projections of a company.There are a few different techniques to use. Horizontal analysis: Looks at two years of data in both dollar and percentage form. Vertical Analysis: Puts each account in a category on the balance sheet and shows it as a percentage of the total account. If you're just starting out, websites, such as MorningStar.com, will have a lot of information for you. You can even find a lot of information in some local newspapers, or a national paper such as the Wall Street Journal.So now that you've looked at the data, how do you know if a company is worth putting your money into? First of all, is it priced low? You'll get the best profit on stocks if you buy at a good price. I personally like to see a good return on investment, or ROI. This means that a company is being run responsibly and likely that other things are going well for this company, too. On the same note, make sure the company is being run well. Has a company shown substantial growth over a period. Also, how is their working capital compared to other companies in it's field? And finally, does the company have a good business model and is it going to be relevant in the future?Thanks for watching, and for more information, check us out on the web at About.com.