How to Analyze Stocks for Beginners

A common method to analyzing a stock is studying its price-to-earnings ratio. You calculate the P/E ratio by dividing the stock’s market value per share by its earnings per share. To determine the value of a stock, investors compare a stock’s P/E ratio to those of its competitors and industry standards.

Investors depend on stock analysis to find potentially profitable stocks. Common ways to analyze stock include technical and fundamental analysis. Several components fall under fundamental analysis, including examination of a company’s price-to-earnings ratio, earnings per share, book value and return on equity. Many investors also use the recommendations of financial analysts to analyze a stock. The type of stock analysis you implement is based on personal preference. Understand the different ways to analyze a stock to find the method that best fits your financial objectives.

KEY TAKEAWAYS

• Technical analysis, or using charts to identify trading signals and price patterns, may seem overwhelming or esoteric at first.
• Beginners should first understand why technical analysis works as a window into market psychology to identify opportunities to profit.
• Focus on a particular trading approach and develop a disciplined strategy that you can follow without letting emotions or second-guessing get in the way.
• Find a broker that can help you execute your plan affordably while also providing a trading platform with the right suite of tools you’ll need.