How to Research Stocks the Right Way

The stock market is a very indispensable component of the economy. It facilitates the issuance, buying, and selling of shares of a publicly-traded company. It has been an avenue of investing for a very long time. It’s also subject to volatility; thus, anyone looking to invest has to be well-versed in this field. Otherwise, it’s highly likely he or she would lose their hard-earned money in a blink on an eye. Before diving into this sector, it’s always advisable to conduct thorough research to avoid such an occurrence.

There are several ways to analyze stocks; one helpful way is by using a stock screenerIt’s an essential tool that aid traders and investors to streamline particular stocks based on their personalized preferences. This tool can assist you to gather much-need information within a very short time. Some of the data that can be filtered using a stock screener include market capitalization, average volume, return on investment, etcetera.

Your success in the stock market is dependent upon the preliminary research you conduct. It’s in your best interest to factor in every aspect of a prospective company to understand how their performance will affect your investment. The following are some simple yet detailed tips that can help you conduct your research on stocks.

Important Steps to Take When Evaluating Stocks

Firstly, you should always bear in mind that stocks offer the best returns when they are used as long term investment; this is because they tend to be quite risky. Ergo, long term investment offers more stability since you’ll be able to absorb the shock of market volatility over time. A good rule of thumb is to invest money that you won’t be needing for approximately five years.

Assemble Your Research Materials

Begin by carrying out a quantitative analysis of the firms you want to invest in. This means going through a company’s financial records. Two documents come in handy when carrying out this assessment; Form 10-K and Form 10-Q. The former usually contains the annual report of a particular company which has been audited independently. The latter contains the quarterly data on financial and operations results.

Streamline your Focus

Financial reports are some of the most helpful metrics in investments; however, they can also be overwhelming especially for people who’re new to stocks. To help you overcome this challenge, here’s what you should focus on when looking at a financial report.


Also known as the top line, this one of the first things you’ll see when you go through an income statement. It shows the amount of money a particular firm got during a specific period. Revenue can be analyzed in two ways; Operating revenue and Non-operating revenue. The main activities of a company are listed on the firm’s operating revenue while one-time activities are listed on the non-operative section.

Net Income

This is the total amount a company has made less the taxes, depreciation, and operating expenses. You should always analyze how the revenue figures compare to the net income.

Price Earnings Ratio

Sometimes abbreviated as (P/E), this is yet another important figure you should look out for when analyzing your prospective investment company. It’s a figure that is acquired when you divide the current stock price of a firm with its earning per share for one year.

Qualitative Analysis

For you to wholly analyze whether a company is worthy of your investment, you should dive deeper than just the numbers. Here are some points that will help you make a wise decision when you’re conducting your research about stocks.

How the firm makes Money

You should always be able to recognize the revenue streams of a particular company; this can either be an easy or a hard thing to do depending on the firm’s operations, as well as the industry the company operates in. A simple rule which you can abide by is to invest in companies that you’re familiar with and truly understand.

Management Team

The management team plays a very huge role in a company; they’re tasked with steering the company in the right direction. Analyzing a firm’s management team can reveal quite a lot. The Board of Directors is something you’ll want to watch; always go for companies that have a board which comprises of independent free thinkers rather than one that has the firm’s insiders. This will ensure that management’s actions are evaluated objectively.

Competitive Advantage

Having a competitive edge is an important element that can contribute to the long success of a company. Be sure to invest in a business that has something which makes it stand out from the rest. Look for things such as patent ownership, innovative capabilities, brand, among other things.

Potential Hazard

Not only should you view the positive side of a business, but you should also query the potential hazards before buying your stocks. This’ll ensure your analysis is as thorough and objective as possible. A good way to go about it is by asking yourself the what-if questions to gauge different scenarios. Several things can adversely affect how a company operates, thereby impacting its stocks. Some of these scenarios include a change in the top management, the entrance of a new competitor, and the expiry of an important patent.

Contextualizing Your Research

Before you commit to investing in a company, you should be able to ascertain whether the firm would be worth it in the long run. A good way in which you can acquire this information is by looking at the firm’s historical data. This will provide you with valuable information such as how the company was able to weather tough economic times. Any business that withstood tough times and came out the other side stronger is a company that’s worth investing in.


The stock market is an area that requires a lot of dedication and commitment before anyone can invest in it. For you to be successful, you have to be very thorough with your preliminary research works. Additionally, you should also be able to correctly analyze the different data and ratios to determine whether a particular stock is a worthy option. Implementing the strategies mentioned above will certainly help you to conduct thorough research, thus increasing your chances of success.