How to analyze Stocks on your own

If you want to be self-sufficient as an investor, you might consider becoming a stock analyst. It's always preferable to learn the skills yourself, especially with some analysts' trustworthiness being questioned.

Though it might require a lot of time and effort to learn you will eventually get a hang of it if you are willing to give it a shot.

The fact that there are professionals in the field doesn’t entirely rule out the option of you learning how to analyze stocks on your own.

It might be time-consuming at the start but will eventually pay off in the long run. It will also afford any investor some level of safety by not being easily manipulated by stock analysts.

What is Stock analysis?

Stock analysis is the examination of a specific trading instrument, an investing sector, or the market as a whole. Stock analysts try to predict an instrument's, sector's, or market's future behavior.

Investors and traders use stock analysis to make purchasing and selling choices. They also seek to gain an advantage in the stock market by making rational choices through assessing and examining past and current data.

Types of Stock analysis

Fundamental and technical analysis are the two most common methods of stock analysis.

1. Fundamental Analysis

Financial records, economic statistics, firm assets, and market share are among the data sources used in fundamental analysis.

Investors and analysts often study the metrics on a business's financial statements such as balance sheet, income statement, cash flow statement, and footnotes to undertake a fundamental analysis of a public company or sector.

These statements are made public in the form of a 10-Q or 10-K report through the EDGAR database system, which is run by the Securities and Exchange Commission(SEC) in the United States.

Investors also examine a firm's earnings report given during its quarterly results news release to determine how much sales, expenses, and profits the company made.

2. Technical Analysis

Technical analysis is the second type of stock analysis. Technical analysis examines previous and current price action to forecast the likelihood of future price fluctuations.

Technical analysts look at the entire financial market, focusing on price and volume as well as the demand and supply forces that influence the market.

Charts are an important tool for technical analysts since they display a graphical representation of a stock's trend over time. A technical analyst, for instance, may use a chart to label certain locations as support or resistance levels.

What Stock analysis entails

Developing an inquisitive mind is the first approach in acting as an analyst, regardless of whether you're seeking growth or value. You must determine what to buy or sell and at what price.

Analysts usually specialize in one business or sector. They concentrate on a few companies within that industry. The goal of an analyst is to thoroughly investigate the operations of the organizations on their list.

They do it by examining the company's financial statements as well as all other accessible information.

Analysts also look into the activities of a wide range of suppliers, clients, and competitors to double-check the facts.

Some analysts also pay a visit to the organization and speak with its leaders to acquire a firsthand grasp of how it operates. Professional analysts progressively make connections to form a whole picture.

You should conduct your research before making any investment. It's generally a good idea to look into numerous stocks in the same industry so you can compare them. Access to information is rarely a problem.

The most significant stumbling block to becoming your own stock analyst is time. Retail investors, who have a lot on their plates, may not be able to dedicate as much time to security analysis as expert analysts.

Nevertheless, you can certainly start with simply one or two organizations to see how well you can examine them.

This will assist you in comprehending the procedure. With more knowledge and patience, you can consider adding more stocks to your watchlist.

How to begin a Stock analysis

Examining analyst reports is the easiest method to get started with your analysis. By reducing the amount of preliminary work, you can save a lot of time.

You do not have to simply trust analysts' recommendations to buy or sell, but you may read their research studies to obtain a fast summary of the company's strengths and weaknesses, primary competitors, industry outlook, and prospects.

Reports from analysts are packed with data, and reading reports from several analysts at the same time can help you spot a common thread. Although opinions may differ, all reports contain the same core facts.

You can also look at the profit estimates of different analysts, which influence whether they recommend buying or selling a stock.

Often for the same stock, various analysts may set different price targets. When reading analyst reports, always search for the reasons. Given the same knowledge, what would your assessment be of the current stock?

What do you Analyze?

You must comprehend the numerous procedures involved in carrying out a stock analysis to get to your reliable conclusion on a stock.

The following steps would be included in any stock analysis procedure.

Analysis of the Industry

For practically any industry, there are available public sources of data. Often, a company's annual report provides a sufficient overview of the industry, as well as its future growth prospects.

Annual reports also include information on large and smaller competitors in a certain industry. Reviewing the financial reports of two or three companies at the same time should provide a more complete picture.

Analyze the Business Model

A company's strengths and weaknesses should be concentrated on. A strong company can exist in a weak industry, and a weak company can exist in a strong industry.

A company's strengths are frequently represented in things like its distinct brand identity, products, consumers, and suppliers. Annual reports, trade journals, and websites can all provide information about a company's business model.

Financial Strength

Analyzing a company's financial strength is the most important stage in examining a stock, whether you accept it or not. You can't think like an analyst until you comprehend financials.

The balance sheet, income statement, and cash flow statements of a corporation should all be understandable to you.

Financial statement figures often reveal more than the fancy words of a yearly report.

If you're not used to dealing with numbers but want to evaluate stocks, there's no better time than now to start learning and practicing.

Quality of Management 

For a stock analyst, management quality is also important. There are no good or bad companies, only good or bad managers, as it is commonly remarked. The company's destiny is in the hands of key leaders.

You can use the Internet to evaluate the management and board of directors of a company. Every publicly traded corporation has a wealth of information available.

Analysis of Growth

Because stock prices follow earnings, you need to know where future earnings are headed to predict whether a stock's price will rise or fall in the future. Sadly, there isn't a simple formula that can tell you how much profit you'll make in the future.

Analysts generate their forecasts based on historical data on sales growth and profit margins, as well as industry profitability patterns.

It essentially connects what has occurred in the past with what is projected to occur in the future. Making precise sufficient earnings estimates is the real test of your stock analysis skills because it shows how well you know that industry and firms.

Valuations

After you've figured out how much money you'll make in the future, the next step is to figure out how much money a company is worth. What should your company's stock be worth?

Analysts must determine how justifiable the present market price of the stock is in relation to the company's value.

Actually, there really is no "correct value" and experts utilize different metrics. Growth investors keep their eyes on earning potential, whilst value investors look at intrinsic value.

To justify its present price for growth investors, a company selling at a higher P/E ratio must expand at a higher price.

Target Price

Setting a target price is the final stage. Once you've grasped the various methods for forecasting future earnings, you can determine a high and low target price by multiplying expected earnings per share (EPS) by the estimated high and low P/E ratios.

The price band within which the prospective stock price is predicted to move in reaction to expected future profits is known as the high and low target price. You can use the goal price to get to your objective once you know it.

Conclusion

Every investor's main objective is to make a profit, but not every investor or analyst is successful at it. Avoid taking stock experts' advice at face value and always conduct your study.

Although not everyone can be an excellent investor, you can still improve your stock analysis skills.

You must be willing to put in the time and effort if you really to be good at it, as you learn, ensure that you are also patient with yourself and not throw in the towel when it seems tough.