Investing: How to Analyze Stocks Cheat Sheet

Overview

Analyzing stocks before investing ensures informed decisions, minimizing risk while optimizing returns. This guide covers essential metrics and evaluation techniques.

Key Metrics for Stock Analysis

• Price-to-Earnings (P/E) Ratio: Compares stock price to earnings per share (EPS).
• Price-to-Book (P/B) Ratio: Evaluates a stock’s market value relative to its book value.
• Dividend Yield: Measures annual dividend payments relative to share price.
• Earnings Growth: Indicates a company’s ability to expand revenue over time.
• Debt-to-Equity Ratio: Assesses financial leverage and risk.
• Free Cash Flow (FCF): Represents available funds for reinvestment and dividends.

Fundamental vs. Technical Analysis

• Fundamental Analysis: Examines financial statements, industry position, and economic factors.
• Technical Analysis: Uses chart patterns, trends, and trading volume for price predictions.

Steps to Analyze Stocks

1. Review Company Financials: Examine income statements, balance sheets, and cash flow reports.
2. Compare Industry Benchmarks: Assess how the company performs against competitors.
3. Evaluate Management & Business Model: Strong leadership and sustainable practices improve stock potential.
4. Assess Market Conditions: Economic trends impact stock prices and sector performance.
5. Monitor News & Investor Sentiment: Stay updated on company developments affecting stock valuation.

Common Pitfalls & How to Avoid Them

• Ignoring Long-Term Performance: Focus on historical trends, not short-term fluctuations.
• Chasing Hype Stocks: Research fundamentals instead of following market buzz.
• Failing to Diversify: Avoid over-investing in a single stock or industry.