How to Research Stocks to Buy
- 1). Obtain corporate financial statements filed with the Securities and Exchange Commission. You can get such documents without charge via www.freeedgar.com.
- 2). Analyze quarterly statements covering two or three years, noting trends in earnings per share and revenue.
- 3). Look for a trend of consistent growth in earnings per share.
- 4). Calculate the company's price-earnings (PE) ratio, a measure of a stock's value. (Divide the stock price by annual earnings per share.)
- 5). Compare the PE ratio with industry norms and with the S&P 500's ratio. The lower the ratio, the less expensive the stock is relative to earnings.
- 6). Beware of debt. Check out the company's balance sheet, looking for the extent of its long-term debt.
- 7). Check cash flow - the movement of cash through the company. You'll want the company to have positive cash flow.
