5 Popular Types of Stock Portfolio
Before You Buy a Stock: Here Are Things You Should Know
Oct 12, 2021
Stock101
How do you know if a Stock is a good buy? What are the factors you check before concluding to buy a Stock? There are thousands of stocks out there in the stock market, and there are a few things to check to know if a stock is a good buy.
Stock investing becomes much easier when you clearly understand the factors you consider before buying that stock or, better, get financial advice on stocks you can add to your watchlist rather than start researching a long list of stocks you hope to buy; it is overwhelming.
Here are five things you should check before you buy that stock:
1. Profitability
Nobody wants to buy a stock that will not be profitable in the long run. To check if a company will be profitable, you need to check the company’s financial statement and records, focusing on metrics such as gross profit, operating expenses, operating income, earnings per share(EPS), total cash, total debt, and current ratio.
These factors are relative, so when you see a company with much debt, check if it is a general trend in the industry. Some industries are known to use debt to finance their growth. You should check a company in the context of its industry.
2. Value Offering
Behind every stock is a company. Before you buy that stock, you must be able to state the value it offers. What value does the company offer its stakeholders that makes the company stand out in its industry? Companies with good value propositions tend to thrive even in the face of competition. Better put, what problem the company is solving, and would this problem be relevant in the near future. If you were in the position to, would you use the company’s product?
3. The Board
You need to know what the management structure looks like and the people managing the company’s affairs. Important personalities in a company include the Chief Executive Officer (CEO), Chief Operating Officer (COO), and other top executives. Check their past management records and ask questions like, have they been involved in a scandal? Are they known to be very profitable? Do they drive the company’s growth?
4. The Stock Type
There are different classification stocks that you should be aware of. An example includes value stocks, growth stocks, dividend stocks, and a number of them. Based on this classification, different stocks perform differently, which makes it important to know the type of stock you are buying.
A young person might be more interested in growth stocks, while an older person would rather be interested in a dividend stock. Know what you want and buy based on that knowledge.
5. People's Opinion
We often call this the feelings part of the stock. As funny as this might look, this can help you pinpoint things you overlooked while doing due diligence on a stock. You can visit platforms like YouTube, Twitter, and other social media to see what people say about the stock.
Pro Hint: The comment section is where the gold lies
Conclusion
These points mentioned above would give you the strength not to sell when the company is going through hard times, and you still find your fundamentals to be right. It will help you develop a reason not to sell a good company. What other things do you check before buying a stock?
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