How to analyze the Stock Market?

Investors can determine the intrinsic value of a security even before making an investment in it by using stock market analysis. All stock market recommendations are created after extensive investigation by professionals. Stock analysts strive to predict future behaviour of a market, industry, or instrument.

Investors and traders make decisions about purchasing and selling equity by applying stock analysis. Investors and traders can obtain an advantage in the markets and make wise judgments by analysing and comparing historical and current data. Two forms of study are utilised to examine and then value a security: fundamental research and technical analysis.

Significance of Stock market Analysis

An investment must always be preceded by study. You can’t make any assumptions about the worth or potential success of an investment until you’ve done extensive research. Even if you follow stock trading advice, it’s still a good idea to do some research to make sure that the investment you are making is one that will likely yield the highest profits.

When you invest in equity, you buy a share of a company in the hopes of profiting from an increase in the company’s worth. You examine a product’s performance and quality to some extent before purchasing it, whether it’s a car or a phone. The same applies to investments. You are ready to invest your hard-earned money, therefore you should be quite knowledgeable about what you are doing.

How to start Stock Market analysis

The most effective technique to get started with your own analysis is to read analyst reports. In this method, you can shorten the preliminary work and save a lot of time. You can read analyst research papers to gain a rapid overview of the firm, including its strengths and weaknesses, key rivals, industry outlook, and future prospects, without having to follow their sell or buy recommendations blindly. The material in analyst reports is abundant, and reading reports from several analysts at once will help you spot any common themes. Although there may be differences in opinions, all stories share certain fundamental truths.

What to Examine before investing in Share Market

You must comprehend the numerous procedures involved in stock analysis in order to get to your own conclusion about a stock. Some analysts adopt a bottom-up technique, beginning with a specific firm and then learning about the industry’s prospects, while others adopt a top-down strategy, starting with an industry and then identifying a successful company. You can place your own order, but everything has to go properly. The following steps would be involved in any stock analysis procedure.

Sector Analysis

For practically every industry, there are publicly accessible sources of information. Frequently, the annual report of a company itself provides a sufficient overview of the sector together with predictions for future growth. Annual reports also include information on the big and minor rivals in a given sector. A clearer picture should emerge from reading the annual reports of two or three different companies at once. Apart from annual reports, quarterly reports are also available and these can be used to track company’s performance in each quarter.

Analyse the Business Model

You should concentrate on a company’s strengths and flaws. There can be a strong company in a poor industry and a weak company in a strong industry. A company’s strengths are typically represented in things like its distinct brand identity, products, consumers, and suppliers, entry barriers to the business, etc. The annual report, trade periodicals, and websites of a company might provide information about its business model.

Financial Analysis

Whether you like it or not, recognising a company’s financial strength is the most important stage in analysing a stock. You cannot think like an analyst unless you understand finance. You should be able to comprehend the balance sheet, income statement, and cash flow statement of a company. Numbers in financial accounts often speak louder than the fancy words of an annual report.

Management Excellence

A stock analyst must also consider the quality of management. It is sometimes stated that there are no good or bad companies, only excellent or terrible managers. The company’s destiny is in the hands of key leaders. You can evaluate firm management and board quality by conducting some Internet research. Every publicly traded corporation has a wealth of information available.

Growth Analysis

Stock prices follow earnings, thus in order to predict whether a stock price will rise or fall in the future, you must first understand where future earnings are headed. Unfortunately, there is no fast formula that can predict your future earnings. Analysts create their own projections by evaluating previous numbers for sales growth and profit margins, as well as profitability patterns in that industry.

It essentially connects what has occurred in the past to what is likely to occur in the future. Making accurate enough earnings estimates is the ultimate test of your stock analysis skills because it shows how well you understand those industries and firms.

Valuation Analysis

After you comprehend future earnings, the next stage is to learn about a company’s value. What should the value of your company’s stock be? Analysts must determine how much the stock’s present market price is justified in relation to the company’s value.

There is no such thing as a “right value,” and different analysts employ different metrics. Value investors consider inherent value, whereas growth investors consider earning potential. To justify its present price for growth investors, a company selling at a higher P/E ratio must expand at a higher price.

To do fundamental research, professional stock analysts thoroughly examine a company’s financial data and announcements. This is done in order to arrive at a presumed fair value or price objective and then make a recommendation to investors (e.g., buy or hold recommendations). Never blindly accept what stock analysts have to say and always do your own research.

Every investor’s ultimate goal is to make a profit, but not every investor or analyst is excellent at it. . Not everyone can be an investment guru, but you can always improve your stock analysis skills. Ultimately, remember that it’s your own money that you would be investing. Developing skills to be able to make right investment decisions will help you in the learning term and you would also make you a self reliant investor.

 

About the Author

Ketan Sonalkar (SEBI Rgn No INA000011255)

Ketan Sonalkar is a certified SEBI registered investment advisor and head of research at Univest. He is one of the finest financial trainers, with a track record of having trained more than 2000 people in offline and online models. He serves as a consultant advisor to leading fintech and financial data firms. He has over 15 years of working experience in the finance field. He runs Advisory Services for Direct Equities and Personal Finance Transformation.

Note – This channel is for educational and training purpose only & any stock mentioned here should not be taken as a tip/recommendation/advice

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