Stock Analysis

PUBLISHED Jun 10, 2022, 9:18:54 PM        SHARE

imgGlenda Wagner

It is also called market analysis or equity analysis.

Traders or investors decide to buy or sell stocks based on analysis. The stock analysis provides traders insight into securities, the stock market, and the economy. Studying past and present data about the market is involved in creating a methodology used to choose appropriate stocks to trade. It also includes identifying ways to enter or exit investments.

Fundamental analysis involves evaluating a company's stock at the basic level of finance. Investors use the analysis to decide whether the current price of a business's stock reflects the value of the company's future value.

Different factors, such as the company's finances and the current economic environment, are used to estimate the value of the stock. Key ratios used to understand the actual value of a company's stock and determine its financial health include

  • Dividend Payout Ratio
  • Return On Equity
  • Price to Book ratio
  • Price to Earnings ratio
  • Price to Earnings to Growth ratio
  • Earnings per share

Earnings Per Share

The Earnings Per Share (EPS) indicates a company's profitability. When the EPS increases, traders consider it a good sign. The higher the EPS is, the more the shares of a company are worth buying.

While EPS is indicative of a company's profitability and distribution among shareholders, it needs to be analyzed in conjunction with the number of outstanding shares and the share price. Investors typically consider both the EPS and the share price as factors in making decisions about the stocks of a company.

The formula used to derive the EPS is the difference between the generated net income and preferred dividends distributed divided by the average number of outstanding shares of stock.

Price to Earnings Ratio

The Price to Earnings ratio indicates how much investors will pay for the company's earnings. Overvalue stocks have high P/E ratios. The high ratio can also mean that the company is expected to do exceptionally well over time. A low P/E is considered unfavorable. As an aid in interpreting stocks, the general rule is

  • 10 or lower – No growth
  • 12 – Slow growth
  • 15 – Moderate growth
  • 25+ - Fast growth

Price to Earnings to Growth

The Price to Earnings to Growth ratio (PEG) helps determine the value of the stock of a company while considering the company's earnings growth. The PEG ratio, together with the P/E, helps obtain a clearer picture of the stock than the P/E alone.

Price to Book Ratio

The Price to Book ratio (P/B) compares the company's market value with its book value. Investors want to know the value the stock market places on the stock relative to the company's book value. They will trade for more than a company's book value if the company is in sound financial health. Investors consider the future growth of a company while pricing the stocks.

Book value is the company's net assets. The value is calculated by subtracting the liabilities from the assets. Another means of calculating the book value is the total equity of shareholders. The equity a company has can be sold to pay shareholders if liquidation is necessary.

Return On Equity

Return on Equity (ROE) measures how effectively assets are used to produce earnings. A high ROE implies a company extrudes greater profits with its available assets. All things equal, it is better to invest in companies with a high ROE for the long run.

Dividend Payout Ratio

The dividend payout ratio is the percentage of earnings paid to owners or shareholders of a company. Earnings not passed on to shareholders are used to reinvest in business operations, pay off debts, or be retained for use in the future.

Beta Measure

Investors assess the risks involved in buying or selling stocks. The risk concept is not easy to factor in stock valuation and analysis. Beta is a popular statistical measure indicator. Analysts use it to determine the risk profile of a stock.

There are limits to the use of beta. It is used mainly in analyzing the price risk. Beta is a measure of the volatility of a stock compared to the overall market. The market has a beta of 1.0. A beta of more than 1.0 indicates an aggressive stock with higher volatility. When the beta is below 1.0, the stock is less volatile. In an overvalued market, it is wise to invest in stocks with a beta less than 1.0

Where Can You Find Stock Analysis Data?

Here are two websites that provide some insight into stock analysis. The first is the Buffet Indicator that, at present reports, the Stock Market is modestly to significantly overvalued. The other is a website entitled Stock Analysis that gives the EPS, P/E, Beta, dividend payout ratio, and a graph of the stock's revenue and earnings financial performance.

Chaster Johnson, a former hedge fund analyst, suggests investing in conservative stocks, such as utilities and consumer staples, when the market is in its current position. Look for a beta less than 1.0, a low price-to-earnings ratio of less than 10, and revenue going up.

If you plan to invest in stocks, consider working with a financial advisor. They often are experienced stock market investors. Financial advisors are excellent partners for those wanting to improve their portfolios.

Sound investments
don't happen alone

Find your crew, build teams, compete in VS MODE, and identify investment trends in our evergrowing investment ecosystem. You aren't on an island anymore, and our community is here to help you make informed decisions in a complex world.

More Reads
The Greenback Bounces Back

Overview: After modest US equity gains yesterday, the weaker yen and Beijing’s approval of 60 new video games helped lift most of the large markets in the Asia Pacific region.

Over to the ECB

Overview: Equity markets in Asia Pacific and Europe are weaker. The main exception in Asia Pacific was India, where the market rose by about 0.75%. Europe's Stoxx 600 is lower for the third consecutive session and is now down on the week. US futures are up around 0.3%-0.4%. The 10-year Treasury yield is hovering a little above 3%. European peripheral yields are softer ahead of the ECB meeting.

"Taking it Private" Explained

If You Own Twitter Stock, What Does Musk's Deal Mean?

How To Get Whitelisted on NFT Projects?

NFT appears to be the current buzzword in the web3 space. People are interested in flipping NFTs for profit by purchasing at a low price and then selling at a higher price. For NFTs, one of the greatest strategies to avoid price spikes once it hits secondary markets is to mint the NFT before the public sale.

Have a Pension Plan? You Still Need to Invest!

Exploring the Pitfalls of Relying on Your Pension Alone


During the pandemic, Zoom experienced fast accelerated growth with spectacular earnings. Its stock traded at among the highest prices in the market. Today, pre-pandemic cultures have resumed, and the video communications growth has slowed down. Is its stock still a buy?

Learning from Financial Advisors

A financial advisor helps clients manage their money. They offer a broader array of services and often assist with operational or short-term aspects of finances.


On May 25, 2022, Nvidia Corporation reported its first quarter fiscal 2023 earnings. The results beat stock analysts speculations especially based on the last quarter’s outlook.

Move-To-Earn: The New Disruptor In The Crypto Space

We will be exploring everything you need to know about this new disruptor in the crypto space and what makes it special.

Terra-LUNA announces a recovery plan, "LUNA 2.0": Here is how it has performed so far!

As astonishing as the recent turn of events in the Terra ecosystem is, the founder, Do Kwon, and his team have made unrelenting efforts to save Luna and UST. The following describes the cascade of events ever since, right into the recent Terra 2.0 project that is currently underway.

Smart Contract Languages You need to know as a Developer

This article will explore different smart contract languages you need to know to emerge as an expert blockchain developer. Before exploring these smart contract languages in detail, we would like to clarify some terms.

Is Astra Space Inc Still a Buy After Their SpaceTech Day?

Astra's SpaceTech day shed light on Astra's significant strides into space. But is it enough to invest in the company?

Credit Scores

It is essential to understand how credit behaviors and activities are considered in calculating FICO scores.

Bouncing into Next Week

market commentary

What to Know About IPO

That Hot New Company is Going Public

Using Money Tools

Many articles and blogs about getting finances together focus on using money management apps to stay organized and get on track.

The Most Expensive NFTs ever sold

Just how big is the NFT market? Also, you should know that most of these very expensive NFTs are tied to particular communities so that they can be held accountable in case of any loss. Well, you already know about the most popular NFT communities from our previous articles. This article will explore the most expensive NFTs ever sold and what makes them so expensive.

Resources for Publishers
Resources for New Investors