DEFINITION:
Stock analysis involves evaluating stocks to make investment recommendations or predictions about their prices. It's a way to study and understand companies before deciding whether to invest in their stocks.
Stock analysis means looking at companies or assets to help investors understand what they can anticipate from specific stocks. It helps investors make informed decisions about buying or selling stocks.
Stock analysis can fit into two main types, or it can involve a combination of both approaches. This means it can be categorized in different ways based on how it's done.
This kind of stock analysis examines a company's basics, like its business and financial details that usually impact stock prices. For instance, it involves checking a company's revenue growth each quarter to guess if it's wise to invest in its stock right now. Analysts use financial documents such as the balance sheet, income statement, cash flow statement, and annual filings (like form 10-K) to create ratios and measurements for their assessment.
Stock analysis can also involve technical analysis, focusing on indicators related to stock trading instead of the company's business details. For instance, it involves studying a stock chart to spot patterns, like noticing that a stock often rises again after reaching a certain price. This observation might encourage some investors to purchase the stock when it nears that price, anticipating a potential rebound.
Analysts and investors may differ in their opinions on using fundamental or technical stock analysis, or they might prefer a mix of both. There's no single correct method for stock analysis; it varies based on the individual preferences of the investor.
Stock analysis can also involve looking at larger aspects like industries or the overall stock market. However, these types of assessments are commonly known as sector analysis when focusing on specific industries, and stock market analysis when considering the overall market trends.
With numerous companies to choose from for investment, how do you decide where to put your money? Should you invest in Apple or Microsoft? Amazon or Google? Or maybe choose between GE and GM? What about smaller companies you're not familiar with? This is where stock analysis helps you make these decisions by examining and understanding different stocks before investing.
Technical analysis is mainly used by traders who make quick buy and sell decisions based on short-term changes in stock prices.
Many financial firms, like investment banks or research companies, hire analysts to study specific companies or other tradable assets such as investment funds. These analysts may offer suggestions directly to the company's clients or make their insights available to the public.
Stock analysis is often represented as ratings to either buy, sell, or hold a stock. It can also include price predictions, like when an analyst guesses a particular company's stock price for the next year. Additionally, stock analysis involves detailed information, such as predictions about future revenue and earnings.
Depending on where you look, you might find an average of forecasts and recommendations from multiple stock analysts, or you might see the opinions of individual analysts.
Stock trading websites and investment information platforms often present analyst reports for individual investors. If you're thinking about investing in a specific company, checking for available stock analysis can help you make a better decision.
You can discover stock analyses in various places online, such as websites that show stock quotes and other platforms for trading stocks. Look for sections labeled "Stock Analysis," "Analyst Ratings," "Research," or similar terms. If you're having trouble finding this information, try searching for a particular company's stock analysis using a search engine.
To understand how well a company's stock is doing, you can compare it with another company in the same industry that has similar finances. This comparison helps give you a clearer picture of the first company's stock performance.
Many individual investors may try to analyze stocks on their own, but it's challenging. Effective fundamental and technical analysis requires significant training and experience.
Professional stock analysts might have conflicts of interest, especially if their firm holds a large investment in the stock they're analyzing. This is why individual investors should review analyst reports but still form their own opinions — a sentiment supported by the U.S. Securities and Exchange Commission (SEC).
The SEC advises investors not to rely solely on an analyst's recommendation when deciding to buy, hold, or sell a stock. They encourage investors to make their own informed decisions.
