Most retail investors depend on media coverage (newspaper, online platforms, and TV), recommendations by friends, and advice by stock analysts to make their investment decisions. However, blindly following recommendations will not reap the right results. On the contrary, you could end up losing money. That is why you need to perform stock and investment research. This technical analysis will enable you to smartly and confidently choose stocks and also give you an understanding of how the stock markets work and what affects stock prices.
Once you create demat account along with a trading account, here are some research tips that you can use prudently to enjoy profits.
Review the Financial Statement
When you want to invest in the stock of a company, the first step is to check the numbers. The only way you can do this is by checking the financial statements of the company. This information is freely available in the public domain. Peruse the balance sheet, income statement as well as cash flow statement. The latter will give you objective details about the performance of the company.
Checking the statements will allow you to ascertain how the company is performing in terms of sales, its profit margins, and how profitable the company will be in the future. Based on this information, you can easily forecast the earning potential of the company in the future. A high earning potential means that the stock of the company will perform well.
Perform an Industry Analysis
Once you open your online trading account in India, be a voracious reader of news. Read trade magazines, research papers, and even reports by stock analysts. Government policies, political stability, and international politics have an impact on industries and companies operating in those industries. So, perform industry analysis to see how the industry is faring.
While you do the analysis, you can also check the shortlisted company’s performance against the competition. That will give you deeper insights into the performance of the industry and the company.
Research the Stock
Sometimes, stocks tend to sell for more or less, depending on the market, foreign investment, government policies and regulations, global market and industry trends, and the performance of the company. So, you should ensure that the money you are paying to buy the stock is the right value. To check this out, you would have to look at the valuation of the company.
To ensure the shares are priced correctly and not over- or underpriced, look at the price-to-earnings (P/E) ratio. It will give you a good idea of whether the shares are overpriced in comparison to the earnings per share. A high P/E ratio means that the shares are overpriced and a low ratio indicates that the shares are underpriced.
Determine the Price Target
This is crucial stock and investment research for beginners. The price target will let you know when to buy the stock of a company and when you should sell and exit. It is prudent to remember that the price target is not static. This figure is dynamic and keeps changing based on the market trends, global scenarios, and government regulations and policies.
Price target is a great way to ascertain whether buying or selling stock of a company will enable you to earn profits in the future. It will also let you know whether it is worth buying or selling the stock in the present.
IPOs are Great for Beginners
As a beginner, you should also focus on upcoming IPOs. Investing in IPOs is a great way to buy cheap shares of a company that has the potential to grow in the future. To learn which companies are launching IPOs, read financial news or check out BSE or NSE. The information is readily available.
To apply for IPOs, you can get in touch with your brokerage and let them know that you are interested. This investment is always done in the primary share market. Once you apply for the shares, the price at which the shares will be sold will be blocked in your account. After the shares are allocated to you, the blocked money will be debited from your account. It is only after that that the shares of the company get listed on the stock exchange and the trading commences one week after that.
In Conclusion
As you can see, novice investors need to focus and learn before they become successful investors. That is why you should concentrate on stock and investment research to enhance your knowledge, and that, in turn, will allow you to invest wisely and smartly.