Stock Analysis - What it Means
Except you want to select stocks through guesswork, you will need stock analysis to evaluate stocks that you want to buy. It is stocks that meet your set buy criteria that qualify for your hard-earned money. The stock analysis process helps you determine if specific stocks meet such criteria.
Stock analysis is the process of carefully evaluating the performance and potentials of companies you are interested in their stock, with a view to seeing if they currently present a good investment opportunity. More precisely, you aim to arrive at a specific value for a company's stock. Investors will like to see that a stock currently trades at a discount from its calculated value, for it to be attractive.
How much analysis to do will depend on the individual and his methods, though a certain body of analysis tools and methodology has also been established. Each analyst can add a personal twist here and there, but most serious analysts will evaluate some known performance parameters.
At the point an investor is analysing a stock, he could be said to be an analyst. However, people who specialise in analyzing stocks and actually devote much of their work time to that function, are typically called stock analysts.
Analyzing stocks is generally perceived from the angle of quantitative analysis of company data. However, a lot of qualitative analysis is important in appraising a company. Information you gather about a company - the nature of its business, its business model, its competition, sector performance and industry outlook - will be critical to a thorough assessment of its the value of its share. Yet, the quantitative analysis is what most are worried about, because they are seen as complicated by the average investor. That is not helped by the fact that no specific method has been accepted as the best. A variety of models are used by different analysts.
A good part of the analysis information is sourced from the published statements of the company, but proper analysis needs to go further. Financial information in the financial statements - profit and loss (P&L) account, balance sheet, cash flow statement - lend to ratio analysis and computations that help see relationships and trends. These will provide indicators for judgments made on the company being analysed.
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