Introduction to Stock Analysis

What are stocks?

Stocks are a piece of the company which the company sells in the market in order to gain capital to invest in new ventures. Thus a person who owns a share of Apple owns a percentage of the company. These stocks can be bought or sold with other members in a market in order to turn a profit. The value of the stock is determined by a variety of factors like revenue generated, debts etc. The value of a stock increases when there is a new product launched by a company such as a new iPhone release increases the value of Apple shares. Conversely, bad news such as a scandal can decrease the price of a stock.

How to analyze stocks?

There are various methods which can be used to analyze whether buying a particular stock is a good decision.

  •  Technical Analysis
    • This form of analysis doesn’t look at the fundamentals of a company but rather attempts to predict a trend based on past share prices. Thus when investors believe that the price of a stock will increase based on past trends, they buy the stock.
  • Earnings per share (EPS)
    • EPS is a metric calculated by dividing a company’s profit over the number of outstanding shares. A higher EPS indicates that a company’s profit is higher than the number of outstanding shares which indicates that a company is extremely profitable. Conversely, a low EPS indicates that the company isn’t making a lot of profit. Thus, it would be a smart decision to invest in companies which have a high EPS and high profitability would result in an upward trend in stock prices.
  • P/E Ratio
    • P/E ratio stands for price to earnings ratio. This value is determined by dividing a stock’s market value per share by its earnings per share. If the P/E ratio is low, then the earnings per share is higher than the market value per share which means that the stock is currently undervalued and should thus be bought. On the other hand, if the P/E ratio is high, then the stock is overvalued and shouldn’t be bought.

There are other methods used to analyze stocks but these are the three main ways.

What do we want to share with our readers?

The stock analysis division of Financial Pills researches and writes articles about different stocks and their overall impact in the economy.We aim to give our readers differing points of views in order to critically analyze the latest information in the stock market. Our team also consists of people of various backgrounds from countries around the world to give our readers a holistic understanding of the news. More articles to be published soon. Stay tuned!

Anand Singh, University of Warwick

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