stock market analysis techniques

Best Stock Market Analysis Techniques for Beginners

Becoming an investor is not a piece of cake—and you should have known that before entering the world of stock market. Buying your first few stocks may just be a product of leap of faith as a first-timer. But you don’t have to stay novice in analyzing which stocks are worthwhile when you know the best stock market analysis techniques for beginners. 

As you seek growth in investing, you have to know your ways around the field to avoid losses and dodge risks. You have to educate yourself in analyzing carefully on which stocks are worth buying or selling—but how should you know all these when you are just starting out? Well, you have to learn stock analysis methods to make better trading decisions in the future. 

What is stock analysis?

Stock analysis is the evaluation of stock data through comparison of the past and present market data available to come up with forecasts in the future performance of the stocks. Stock analysts assess the trading instruments, the investment sector, and the whole market to determine possible movements in the stock market.

When you have finally decided to invest or trade stocks, it is your sole responsibility to do some in-depth research about the sector and stocks you are interested in. After all, it is your financial health that’s on the line. It takes constructive actions in order to yield more. 

Kick-off your investing venture with the right techniques and try to avoid the common pitfalls of investing. In fact, 7 out of 10 American investors wished they did something differently in 2019 to increase their returns according to a recent poll by NerdWallet. As a beginner, you may commit some mistakes in your early stages of investing, but as you tread deeper into the stock market, you ought to be sharper. 

Two types of stock analysis

There are two types of stock analysis used in the stock market and you will be utilizing them over the course of time you are trading.

  • Fundamental analysis

This stock analysis aims to determine how much the business is worth through assessing the company’s financial records performance, market shares, and competition. This method is essential as the share value is correlated to the performance and value of the company. Its main purpose is to identify strong companies by looking up how their performance affects their share value and prices.

  • Technical analysis

This method is used to forecast any predictions in the trend and price movements of stocks in the market. It is done through assessing the historical data available of a particular stock. This way, trends, price movements, and demand and supply factors in the past serve as the indicators of how they are going to turn out in the future. Through the use of charts, it is easier to understand the previous market behavior of the stock you are looking into.

stock market analysis techniques beginners

7 other techniques to analyze stocks

Aside from the two methods of analyzing stocks, here are the best techniques to do it—beginner or not. 

1. Earnings per share

To know how efficient a business is doing, you shall look up its earnings per share or EPS. EPS are reported quarterly and they are an indication of how much a company is generating profits from stock. In investment, the higher the EPS, the better for you.

However, the growth in EPS over time is critical as companies may temporarily boost their EPS through selling assets or cutting costs. You should monitor how the EPS changes over time and try to avoid businesses with consistent negative EPS. 

2. Revenue

While EPS can show you how well a company is doing, its revenue indicates how much the business is generating. The positive trends in the revenue of a company means it is expanding its business. 

Mind that high growth companies may tend to go on years without positive EPS because they are investing in growing their business. You will also notice that some struggling companies are acquiring profits, but their revenues are all down. 

3. PEG ratio

The PEG ratio or price-earnings-growth ratio is a simple way to merge earnings, revenue growth, and stock price in one simple figure. The price-earnings ratio or P/E ratio is the stock share price divided by the EPS. This doesn’t incorporate growth. Whereas the PEG ratio is calculated by dividing the stock’s P/E ratio by its predicted 12-month forward revenue growth rate. 

To know if a PEG is good, a ratio of below 1 is good, while above 2 is risky as it seems overpriced. 

4. Debt-equity ratio

One of the things you should look into are the debts of a company. If a company relies on debt to boost its growth, there is a high tendency for credit downgrades. The debt-to-equity ratio is calculated by dividing the company’s liabilities by its shareholder equity. Done to measure the leverage of the company, a ratio less than 0.1 is considered good, whereas an above 0.5 is high-risk.

stock market analysis

5. Dividend yield

Mature companies often get a portion of their quarterly cash flows to pay their investors directly through dividend payments. A dividend yield is the company’s annual dividend payment divided by the share price. 

You should be careful with companies because they can cut their dividends at any time. A dividend yield of above 3% is considered high, and anything above 5% is too risky. 

6. Company’s guidance

Many companies provide guidance to investors so that they know what to expect on a quarterly or annual basis. The companies know that shares are not solely priced based on the past and present performance, but also the future. So along with their earning report, they share their own predictions for revenue, EPS, growth, and more that will help you make up your mind. 

7. Recommendations of analysts

Where can you get better information about predictions than the analysts? There are, of course, the experts in the stock market and you should keep tabs on them through browsing their reports. Wall Street has a list of top analysts in each sector you can check out, so follow them. Most analysts release comprehensive reports on individual stocks including their projections, ratings, and 12-month targets for a share price. Stocks are said to react often when these analysts change their stock ratings. 

Although analysts may seem to be the experts of the stock market, their predictions are not always accurate. But when you keep tabs on their updates, you can acquire essential knowledge that you can use in analyzing on your own.  

Investing and trading stocks is quite a work at the beginning—it doesn’t just require you to be financially prepared, but you also have to be emotionally capable when dealing with it. Just like any other venture, it could be perfected with the help of educational training such as online classes. Skill Success offers a wide array of competent online classes about stock market analysis to guide you which consist of:

These courses are sure to amp up your knowledge in stock market analysis. That way, you can yield more than what you have expected when you first start investing.

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About The Author

Hazel S.

Hazel S.

Hazel is a Communication graduate who writes about e-learning subjects that vary across all fields. She believes in the power of knowledge to achieve triumphs in life—whether careerwise or personal. Currently, she is living with her family and two white cats.