Financial Indicators, how to pick a stock

Updated: Jan 27

A lot of Investors lose money if they just dive into stocks without gaining knowledge of what they are investing in. We do not have time to sit in front of the computer and study everything. There is a wonderful, easy way to assist you to lookup some valuable information by making use of application software.


I make use of Tradingview and will have a follow-up blog around using Tradingview to assist you with viewing any stock.



Key Indicators


Research the company fully


Who owns the company, what is the companies values, do they have a good team and a positive outlook for the future? The market cap is one way an investor can evaluate how much a company is worth. To determine a company's market cap, simply multiply the share price by the number of shares outstanding. You get Large, Medium and Small Cap Companies.


P/E Ratio


The price/earnings ratio is a common financial measurement that investors use to evaluate whether a stock price is a good value, which are a company's profits, expressed per share.

What Is a Good Price-Earnings Ratio?


A good P/E ratio isn’t necessarily a high ratio or a low ratio on its own. The market average P/E ratio currently ranges from 20-25, so a higher P/E above that could be considered bad, while a lower PE ratio could be considered better. So, if a company has a P/E ratio of 20, this means investors are willing to pay R20 for every R1 per earnings. That might seem expensive but not if the company is growing fast.


Compare this number to other companies similar to the one you're researching. If your company has a higher P/E than other similar companies, there had better be a reason. If it has a lower P/E but is growing fast, that's an investment worth watching.


Things to take into consideration when looking at the P/E ratio:

  • Investigate the future potential of the company further when they look to high

  • Small Cap shares sometimes has higher PE ratio

  • Technology and Biotech companies have a higher P/E ratio due to their higher earnings growth.

Beta


Beta measures the systemic risk involved with a company's stock compared to that of the entire market. Anything higher than one is a risk, lower than 1 is low risk. Beta is more of a short-term indication and not long-term.


Remember also that with High risk comes High rewards.


Dividend yield


Dividends are distributions made by a company to its shareholders as a reward from its profits. Dividends mean a lot to many investors because they provide a steady stream of income. Most companies issue them at regular intervals, mostly on a quarterly basis.


Invest in high dividend yield companies also to ensure a reward for your investment, this is a must for every portfolio.


Technical Analysis


I never invest without looking at the Technical Analysis first. This is a graph that indicates the movement of the share over a period of time and assist with determining whether the price is overvalued or undervalued (RSI).


It takes time to familiarise yourself with the technical details and I will have a broader overview on this in my next Blog for those of you that want to go into the share analysis a bit deeper.



Dig into those details ! 😊


Happy Investing

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