Who wouldn’t love to get their hands on winning stocks? While this is everyone’s dream, it isn’t as easy as looking at a stock’s face value and putting your money on it.

Learning how to research stocks is a must. You’re not in Vegas, and you’re not gambling. Stocks are a solid investment when you do your research, but failing to do so puts your hard-earned money at risk.

Continue reading this article to learn about researching stocks so you can get the best possible results.

How to Research Stocks

Watching stock news is a good start to keeping yourself abreast with the news, but there is more you can do to make sure you pick the right stocks for your portfolio.

Compile Your Research Materials

Never start evaluating stocks without having all of the information. While a stock might look good at the surface, it may wreak of impending doom when you look into it further.

Never get excited about an investment before you’ve compiled all of your research materials.

The first thing you need to get together is the company’s financials.

Companies are required to file Form 10-K and Form 10-Q with the U.S. Securities and Exchange Commission so you will be able to get access to them easily. This part of your research is called quantitative research.

Form 10-K allows you to see the company’s key financial statements. These statements have been independently audited, so you don’t have to worry about the numbers being massaged.

Pay attention to the company’s balance sheet and where it gets its income. You should also look at how the company uses its income, its revenue, and its expenditures.

The Form Q-10 gives a quarterly update on the company’s financial results and operations.

When you’re working with a brokerage firm, they usually have a summary so you can easily read over them and see the important parts. This can be an effective way to get a lot of research done, but make sure you feel comfortable with your firm before you trust the information they have on their website to be your primary information.

Throw Out the Majority

Now that you’ve gathered a massive amount of information on multiple companies you’re considering — it’s time to throw out most of these players.

You’re likely to have a bit of a headache from all of the numbers dancing around in your head, but it’s time to get rid of some of those numbers. Look at some of the most important parts of the information you have and throw out the ones that you don’t like.

Here are the things you need to pay attention to:

  • Net Income
  • Revenue
  • Earnings and earnings per share
  • Price-earning ratio
  • Return on equity and return on assets

Yes, we understand that is a lot of information, but once you get through it, you can get rid of a lot of the stocks you’re considering.

When you’re looking at the revenue, you want to see operating revenue and how well it is doing because that is the revenue that comes from the core business vs. one-time business activities.

The net income lets you see how much money the company has netted after subtracting things like expenses and taxes from the company’s revenue.

Earnings per share information allow you to see the company’s profitability for each share. When you see this number, it is a lot easier to compare it to the other options that you have.

You’ll also want to pay attention to how much profit the company generates per dollar a shareholder invests.

When you look at all of the information, you can throw out a majority of the stocks you were considering and move on to the next step.

Get Down to the Nitty Gritty

You thought you were going deep before, but now you really need to get into each of the companies that you’re considering.

It’s time to get into qualitative research. Qualitative research answers questions about how the company makes money if the company has a competitive advantage, how good the management team is and more.

When you research these things, you’ll be including the human element instead of just looking at the numbers and trying to make this very important decision.

Look at the Overall Picture

Now that you’ve done all of your research gathered your materials and you’ve thrown out the ones that don’t look like winners — it’s time to look at the overall picture.

You can’t only look at the financials, and you can’t only look at the leadership. You have to look at everything together. You have to want to own the company vs. just hoping that the stock is going to go up.

You shouldn’t only look at the past year of data. You need to pull back as far as possible and see what the company has done since they got started. Are they a strong company that you want to have a part in or do they look shaky?

Looking at the overall picture will allow you to have more confidence in your investment, which makes it less likely that you will falter when stocks go up and down.

Get More Helpful Finance Information

Learning how to research stocks is important, but there is more to learn. We know that you want to continue to grow your wealth, so we’ve put together more guides just for you.

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