As an investor if you wish to be self-reliant, then you should have to consider becoming your own stock analyst. So following things you need to consider.
Analysis involves a process
It really doesn’t matter if you are an investor who looks for the growth or value, but the thing that matters is to think like an analyst in order to develop a probing mind. So, you need to find all the things what you have to buy or to sell at which price.
Analyst mainly focuses on a particular sector or industry. Within that company, they focus a lot on selecting the companies. So, an analyst’s aim is to deeply investigate the affairs of the companies on their list. They do this by analyzing the financial statements and other information that are available regarding the company. For cross-checking of the facts, analysts must investigate the affairs of a company’s suppliers, customers, and competitors.
Some analysts must visit the company and interact with the management for gaining a firsthand understands workings of the company.
Before making any investment, you should to perform your own research. It is recommended to research several stocks in the same industry so that you must have a comparative analysis.
Another factor that matters for your own research is time. So it is advised to spend most of the time just like professional security analysts.
The Best Place is to start from where you are
Analyzing as an analyst, i.e. analyzing the reports of analysts, the best way is to begin your own analysis. So, you can learn a lot about your selected company by reading the analyst’s research reports. You are not follow the analyst’s sell or buy recommendations blindly. But, you can read the research reports of analysts for getting a quick overview of the company including all its strengths and weaknesses, competitors, industry outlook and future prospects.
Analyst’s reports are always loading with information and reading reports by the different analysts simultaneously helps a lot in determining the common thread.
What things to analyze
You are needed to understand the various steps involved in stock analysis for becoming a stock analyst for your own.
Some analyst follows a top-down strategy to start with an industry and then locate a winning company. Others are following a bottom-up approach to start with a particular company and then learning the outlook about the company. The process of analyzing a stock involves following steps:
- Industry Analysis
For any industry, there are publicly many available sources of information. The annual report of the company gives an overview of the company along with its future growth outlook. Thus, annual reports informs about the major and minor competitors in a particular industry.
- Business Model Analysis
You should also need to focus on the strengths and weaknesses of the company. There may be strong company and a weak company in a strong industry. The company strength reflects so many things include unique brand identity, products, customers, and suppliers.
- Financial Strength
The most crucial step for analyzing a stock is to understand the financial strength of the company. Without that, you are not able to understand the company’s balance sheet, income statement, and cash flow statements.
- Management Quality
The other thing you need to focus as an analyst is the management quality. It has been said that there are no bad or good companies but there are good or bad managers. So, key executives are very much responsible for the future of the company. You can also access to any company management and board quality by doing some research on the Internet.
- Growth Analysis
Stock prices follow the earnings. So, in order to know about the movement of stock prices in the future, you are required to know about the future earnings. Analysts make their own estimates by analyzing the past data for the purpose of sales growth and profit margins along with the profitability trends in that particular industry.
The next thing to do is to know the worth of a company. Analysts keep comparing the market price of the stocks with the company’s value.
A company which is selling at a higher P/E ratio must grow at a higher price in order to justify its current price for growth investors.
- Target Price
The final step to be taken by you is to set a target price. Once, you know about the future earnings then you can easily calculate the high and low target price by multiplying the estimated earnings per share with the estimated high and low P/E ratio.
How a common man transformed into a stock analyst?
While making a common man to be a stock analyst, following stages of common man have been considered:
- As a common man, he doesn’t know about the stock market. So, he is thinking about the market as a risky thing. But sometimes others are lucky who can easily make money and the rest ones lose money at all the times.
- As a common man, he is excited to invest large amount of money on the basis of examining his friend or neighbour who can make large money in the long run. Now, he wants to know where to invest the money in order to gain fast money without knowing how to invest. So, now he takes advice from many people and gets confused than before he gets the first and best advice, i.e. stay away from market.
- Now a common man calls himself as an investor. So, he plans to invest money in some shares that is advised by his friend or broker. He is going to be happy till the date when the stock is growing and gets depressed when the stock starts going to down.
Role of a stock analyst
The following roles and responsibilities have been performed by the stock analyst:
- Stock analyst plays a major role in examining the securities of companies that are in various industries by using spreadsheets and other forms of software.
- They mainly examine industries, sectors and companies throughout the global markets in order to determine the fair valuation and with the purpose to assess the merits of current or future investment.
- They also make use of charting packages, spreadsheets and other financial software programs in order to examine the fundamentals of financial, health and technical stock performances of both current and potential future investments.
- They work largely for investment or commercial banks, large corporations, brokerages, and even research firms advising employers or clients on how to invest capital in best ways.
- They have to look at the financial results, market prices, and other industry factors that might affect the company’s stock price.
- They also analyses the past and present data in order to predict the future earnings of the company.
- They advised their clients if they wish to buy or sell stocks on a particular business.
Thanks and Regard
Your Stock Adviser