A question which every
investor has. But how to know which stock to invest and at
what price to invest. A million dollar question, isn't it?
I am not going to give you any stock target but will
provide few pointers which will help in making a decision
in buying a stock.
Business of the
company
Understand the business
model of the company. How the company is earning money?
What are the risk factors that will affect the revenues of
the company. The great Warren Buffet always says"Invest in
companies which business you can understand". This is the
most important criteria of choosing a stock.
Industry of the
company
Check which industry the
company operates in. How the industry is performing
currently. What is the future growth rate of the industry.
Which are the factors which affects the industry positively
and negatively. Choose a stock which industry outlook is
positive.
Current state of
economy
Current Outlook of the
economy in which the company operates. What is the Gross
domestic product and Gross National Product?
Sales/Revenues
Revenues/Sales figure of
the company are extremely important. Take the last 5 years
sales/revenue figure from the annual report and calculate
the growth rate in sales/revenue. Compare the growth rate
with the industry growth rate and the competitors growth
rate, this will give you an idea how the company is
performing vis-a-vis its competitors.
Net Profit of the
Company
A very important criteria
for measuring the performance of the company. Check the
ratio of Net profit to Sales, this will tell you how much
profit the company is making from Sales. The higher the
ratio, the better the company's performance.
EPS
Earning per share basically
is the Net Profit/Total number of shares. It shows how much
money the company has earned per share.
Trading Volume
How many shares are traded
in the stock market on a regular basis. Compare the figure
with the top 10 highly traded stocks and you will
understand how liquid is the stock.
These are certain important
criteria which should be considered before buying a
stock.
