How To Do Effective Stock Research and Analysis


Investing is an art that is backed by information and it is not for those who do not like risks as it involves plenty of this.

This does not mean that you should be an expert before you start investing as you will most likely never be if you are on the outside and do not actively participate or even make mistakes and learn from them.

Instead of waiting to become a so-called expert before you start, you can learn on the job by researching, copying, and learning from those who have mastered the art to a large extent.

It is natural that when you are new to something, you ask questions from people who have been there.

Investing In Stocks

Effective Stock Research and Analysis

One of the many ways to invest is in stocks. They are very popular and perhaps one of the best investing methods available. This means that you are buying equity and shares in a company or organization by which act you become a part-owner of the company.

Stocks are typically considered to be long-term investments with a bit of a risk. You are likely to experience some ups and downs so whatever funds you are putting there should be one that you do not need for a few years.

To invest in them, you need knowledge of how trading in the stock market works. You do not just go ahead and buy shares of any organization you find without first research about how it all works. You can learn all about stocks here.

Researching and Analyzing Stocks

Researching and analyzing stocks is a process. Although you may be able to base your decision other factors in some cases, in most cases, you need to know a number of things including, the company’s reputation, how well they are doing, the general economy and so on. This is usually referred to as fundamental analysis in stock research.

Whether you are aiming for growth of for value, you need to have a probing mind that asks questions and searches for answers to those questions. Part of this is finding out what to buy or sell.  At what time to buy or sell and at what price.

Most analysts focus on particular sectors and select companies which they then go ahead to study, probing the financials of the companies, their leadership, and also their competition.

They also go further to cross-check facts, suppliers, and customers. This helps them to see the big picture and see how a company is doing as well as how it night perform in the next couple of years.

As an investor, before investing, you may have to do some of this to evaluate different stocks and see which one you should buy into. While information is most times available, all these can take a bit of time so you can start with one or two firms that you are interested in.

Over time and with more experience gathered, you can expand your reach. Even if you are to use experts such as stockbrokers, it’s still good to understand the fundamentals of how all of these work.

The question is where do you look for answers to your questions and how do carry out your stock research? There are many online tools, apps, websites, and platforms available that can guide you in your investment decisions.

Steps Involved In Stock Research

Effective Stock Research and Analysis 2

Look for Information

To begin your research, you should start from where you are. Gather all the documents and information that you may need both online and offline.

Do quantitative research by looking into the financial statements of companies and how they have performed in the last couple of years.

You can do this by getting some documents such as annual reports and quarterly updates of their operations and financials that are mandatory to be filed with the Securities and Exchange Commissions. These are available for public consumption.

You can either use a top-down approach meaning that you start with a particular industry, look at several companies there and locate one that is doing great. Using the bottom-up approach means that you start with a company and then learn about the industry as a whole.

Another thing is to look at analysts’ reports about the stocks you are interested in. This will help save you a lot of time as they are full of information.

You can read reports from a different analyst on the same stock and see the common thread in the reports. Earnings forecasts from different analysts can also be of great help.

What to Analyze

To reach a reliable conclusion, you need to know what is involved in stock research and what to look for especially with the mountain of information that is available to you. You can start with the revenue over a specific period which can include both operating and non-operating revenue.

The operating revenue tells how much an organization made from its core business while the non-operating revenue talks about money made from a one-time business activity like selling an asset for instance.

There is also the net income which is their bottom line. It is what the organization made after deducting things such as taxes, expenses, and depreciation from the revenue.

The earnings per share (EPS) is also a good indicator to watch out for. It tells how profitable, on a per-share basis, the stock is. Other indicators to look at include price-earnings ratio (P/E), return on equity, and return on assets.

Perform a Business Analysis

Now the next step is to turn to the business analysis of the company. You want to know about the company’s strengths and weaknesses.

How they make money, which may be obvious or not, what products or services they sell, etc. You will want to check how strong their brand identity is, who their customers and competition are and if they have a competitive advantage as well as capacity for growth.

Their leadership and management team is also a good indicator to watch out for. You also need to check if there is anything that can go wrong or if there are any red flags both in the short and long term.

Putting it All Together

Now that you have information at your fingertips, it is time to put everything in context and see which one you should invest in. You should understand that there is no quick nor definite way to tell what to expect or how a stock will perform.

It is about speculations and estimates based on past as well as present performance and growth. That is, taking what has happened in the past with what is expected to happen in the future and making decisions based on that.

The more accurately you can predict a stock shows how much you understand an industry and companies in that field.

You can learn more by reading through this article about research stocks.


From the above, it is obvious that there are various factors and metrics you as an investor can use to research and understand a stock.

When starting out, you will need to put in a lot of time and effort to understand various stocks. Over time though, you will get better at it and require less time.

Remember, you do not have to start from zero as there are various analyst platforms available to kick start your research.

You May Like To Read:

Author: Jessielyn Craft