Investing in the stock market is like gambling: one way to increase the odds of making a profit is to analyze the stocks before proceeding with the investment. For those who are preparing for the first time to invest in the stock market, the analysis of securities can be useful to become familiar with these financial instruments. You should learn to analyze a stock before buying the related shares, in order to evaluate its convenience.
Steps
Step 1. Always keep in mind that no stock is guaranteed
If you analyze an action long enough, you are forced to find both positive and negative aspects. This is due to the fact that there are no perfect or guaranteed actions and each of them carries a certain degree of risk. It is unthinkable to focus on looking for the perfect title. Instead, look for stocks that have a solid history and have produced positive returns
Step 2. We need to determine the income, profit and cash flows
While analyzing a stock, to determine whether its income produced is increasing or decreasing, one needs to analyze the income produced by the underlying company. If the company's income is increasing, it means that the company is growing. Firms with decreasing incomes are not strong enough to be considered as an investment option. This system is one of the simplest to analyze a stock and determine its value
Step 3. Evaluate the "earnings per share" and the "price / earnings" ratio
Another element to consider when analyzing a stock is EPS (from the English acronym "Earnings Per Share", or earnings per share). The EPS depends on the number of shares that the issuing company has placed on the market and on the amount of money that will be paid for each single share by way of distribution of profits. This is an elementary way to determine how profitable each single action is. To better calibrate the valuation it would be advisable to take into due consideration also the price / earnings ratio ("PE Ratio" in English), the multiples of the share value ("EV Multiples" in English) and the ratio between the share price and the company's revenues. It is important to compare these indicators with the historical average of the company in question and with the same indicators of the reference sector
Step 4. Watch what the analysts do
For each share that is considered for the investment, it is necessary to analyze the growth of its profits. Profit growth represents the growth rate expected by analysts and experts over a 5-year period. Companies with stable and positive profit growth are a more reliable investment than those with erratic growth projections. However, it must always be considered that the estimates made by analysts are often accurate in the short term, but to a much lesser extent in the medium and long term
