Factors to Consider Before Investing in Stocks of a Company

Investing in the stock market blindly is not a wise decision as various factors affect the movement of the entire stock market or the share price of individual companies. Doing some research and analysing certain factors will help you to choose the right company and pick the right stock at the right levels with the scope of long-term growth and capital gains.

Yes, there are few things you need to consider or analyse while investing in the stocks of a listed company. And to analyse these factors you don’t need to be a professional financial analyst, but you can easily research things and do the analysis. Though there are many factors here we brought the key points or the most important things to consider before buying stocks.

5 Things to Consider Before Buying Stocks

#1 Nature of Business of the Company

Before you invest your hard-earned money in a company you should be fully aware what is the nature of the business of the company. Understand the business model of the company or what products or services are offered by the company, its industry or sector and the clients to whom it is serving. 

The best way to know about a company, visit the official website of the company and read the “About Us” and “Services” sections of the company. You can also find such information from from company’s annual report or various online sources like Wikipedia or Business Listing websites.    

#2 Analyse the Financial Performance

The growth of the business of a company can be analysed from its revenue and net income growth. Hence, check the revenue and earnings growth of the company in the last five years in terms of the CAGR growth. Also, check the growth in the operating income and net profit in the same period.

Analyse the operating margins and net profit margins, whether it is improving, decreasing or remaining stable in the last five years. If possible also check the EPS, ROE, ROI, RON and various financial ratios like debt to equity ratio to know the financial health of the company.     

To find out the financial performance of the company you can visit the company’s website under the investor’s section you can get such reports. All the listed companies are mandatory to report their audited financial results on a quarterly, half-yearly and annual basis with a annual report.  

#3 Analyse the Fundamental Factors 

This is one of the most important factors when you are looking to invest in any company with a huge amount with a long-term time horizon. Check the fundamentals of the company like its management, its operating margins that should be highest in the industry, revenue market share in the industry and the market capitalization to compared to other industry players.

Also, check the net profit margins and stock price growth performance of the company. Investing in a fundamentally sound company will not only make your investment safe but also have the better potential to grow with the pace of economic and industry growth.     

#4 Evaluate the Intrinsic Value of the Company

Before buying a stock also check the intrinsic value of the company. The intrinsic value of the stock price of the company is the real value of the company that can be lower or higher than the market value of the stock depending on the expectations from the growth of the company.   

The intrinsic value of the stock can be calculated using the future cash flow of the company, then calculate the present value of the estimated future cash flows. Add up all of the present values, which will be the intrinsic value of the company can be higher or lower than the current share price.

If the current stock price of the company is trading higher than its intrinsic value you should avoid such stocks or wait for the correction to buy. And if the current market price is trading at a lower than the intrinsic value, then you can buy the stock at the current price.

#5 Technical Analysis of the Share Price of the Company   

Buying the stock at the right levels is one of the most important factors while investing in stocks. As the expectations of the investors from a financially sound and fundamentally strong company are much higher than a fundamentally weak company. Hence its stock price also keeps trading at higher price.

Therefore you need to analyse the stock price of a company using TradingView charting. Analyse the candlestick charts, apply the technical indicators and various other tools and parameters to analyse the stock price whether it is the right time and levels to buy or should wait if there is any possibility to come down in the near future. And it is not possible without technical analysis.   

Wrapping-up        

Apart from all these key points you also need to consider various other factors like the time horizon to invest and your risk appetite to invest in the stocks. The stock market is one of the very highly volatile places, where you can earn as well as lose your money within a fraction of a seconds.

Hence, before investing in the stock market always consult or get help from the stock market experts like research analysts who can easily understand and analyse such things better and guide you to invest in the stocks of the right company at the right time with the right approach.  

Also Read: 5 Reasons & Benefits Why You Should Invest in Stock Market

Hence, what are you waiting for, choose the right discount broker and open a demat and trading account to start your investment journey in the stock market and enjoy the benefit of high returns with diversified investment options in highly liquid instruments at nominal charges.

Disclaimer: The views and investment tips expressed by investment experts here are their own and not those of the website or its management. And the movement of recommended stocks are subject to the movement of the main index or entire stock market. Hence, there is risk investing in the stock market, it is advised users to check with certified experts before taking any investment decisions.