4 things to consider when picking a stock
Passfolio lets you invest in over 6.000 stocks, ETFs and REITs. There are plenty of options, but picking the right investment can be hard when there are so many to choose from.
If you struggle deciding where to put your money, this blog post could be for you. Here we’ll go over some indicators that might help you find stocks that suit your investment objectives. However, keep in mind that these indicators may not be the best for your particular investment profile and are no guarantee of a stock’s future performance.
Do the company’s earnings tend to grow over time? Consistent earnings growth can be a positive indicator of value and future performance.
However, it should be noted that past performance doesn’t guarantee future results and future growth estimates may differ significantly from one reported source to another, depending on which growth estimate is used in the calculation, such as one-year or three-year projected growth.
Volatility is a measure of how intensely an asset’s price swings. Volatile assets tend to be perceived as riskier than less volatile assets because their price is expected to be less predictable.
As an investor, you may take volatility into consideration when assessing the risk of your investment. Have in mind, though, that volatility may not be all bad. Despite increasing the potential for loss, volatility also increases the potential returns on your investment.
To figure a company’s debt-to-equity ratio, divide the total liabilities on the company balance sheet by the total amount of shareholder equity. This ratio reflects the ability of shareholder equity to cover all outstanding debts in the event of a business downturn.
Debt isn’t necessarily a bad thing, since a company may borrow money in order to accelerate its growth or enter new markets, for example. However, too much debt can put a company’s financial health at risk and is something to watch out for.
The price-to-earnings ratio is a measure of how well a stock’s price is doing relative to the company’s earnings. To find this ratio, divide the current share price by the company’s earnings per share.
A high P/E ratio might mean that a stock is overvalued or that investors expect the company to grow significantly in the future. Companies that have no earnings or that are losing money typically do not have a P/E ratio.
Where to get financial information on stocks
You can usually find financial information from publicly traded companies on their websites. For example, you can find Coca-Cola’s balance sheets and other financial information here.
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