How to Pick a Stock
Share market Investments are good for long-term capital gains and also for the Short-term gains. You can make the exponential amount of money But what really Important is, Which Stocks you pick for Investment and the time horizon you are looking to Invest?
Investing in Quality stocks will always help you gain moderate gains and have limited downside.
I will guide you with some of the basic Tips using that anyone can decide if they can Invest in a particular Company Share.
Company Fundamentals -
It mainly focuses on the company business, the business model of the company values here. In a country like India, where car sales are on rising every year, which Indicates business is good.
There are factors which decide fundamentals of the company and it will Include Income Statement, Balance Sheet, Management and the Cash Flow.
For example - If we consider Maruti Suzuki, You will see that the company has been doing good for decades In terms of its Sales Figure and also the Profit Margin. The company has expanded its products across countries and have products in all the variants. These things clearly say that the company is fundamentally strong.
Company Recent Performance -
You will need to see the Quarterly results of the company, some of the parameters you need to focus under the company results are NetSales, Profit, Other Income etc.
You can compare NetSales and Profit as a parameter to decide if you can go and Invest in that particular company. The numbers should be on rising when compared Quarterly, Half Yearly or Yearly basis.
Financials -
You need to look into the company Balance Sheet. A balance sheet is a financial statement that summaries company assets, liabilities, and shareholders equity at a specific point of time. The balance sheet segments give investors an idea as to what the company owns and owes, as well as the amount invested by the shareholders.
When you look into the Balance Sheet, then please check the Debt of the company and the Promoters Share Holding Pattern.
For example, Please look at the below balance sheet, the lesser the Debt of the company it is better.
Promoters Shareholding Pattern - A company which is largely owned by the Promoters is good. Please note that promoters can have only a max of 75% holding in the company.
If you see an uptrend in the promoters holding in last few quarters then it is a good sign.
If you will see the below analysis, you could see that the promoters holding is already near the Upper Cap, which is a good sign.
Charts - Share price movement can be easily traced using the chart, these charts can be seen in Google or you could also see in your respective Demat Account.
A company chart which is in an uptrend for quarters is sustainable for moving uptrend in near future.
If you will see a two-year chart of the company, it clearly shows an Uptrend and it is a clear Indication that the company will keep moving in the uptrend direction. Clear Indication for a "Buy".
Please refer to the 2-year chart - Shows Uptrend, Buy.
Shows Downtrend - Sell
It is always advisable to track development and News of the company. Any big Order win or corporate tie-up will lead to an upward spike in the stock price.
If you hear any bad developments with respect to the company then you will immediately see an Impact on the share price. The share price will start falling may be less or more.
You could decide basis the news flow if you would like to buy or stay out of the Investment.
Rating Agency Views -
Rating Agencies, Such as Fitch, Moody etc keep publishing their reports on different markets or to a particular company. If there are any negative precautions then the share price may start trending lower or any rating upgrade could even lift the price upwards.
I will share some more tips in the next Blogs, If you have any questions then please drop in comment section.
Excellent Effort
ReplyDeleteThanks for the comments Mazar.
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