By
eHow Personal Finance Editor
Difficulty: Moderately challenging
Things You’ll Need:
Step1
Obtain corporate financial statements filed with the Securities and Exchange Commission. You can get such documents without charge via www.freeedgar.com.
Step2
Analyze quarterly statements covering two or three years, noting trends in earnings per share and revenue.
Step3
Look for a trend of consistent growth in earnings per share.
Step4
Calculate the company's price-earnings (PE) ratio, a measure of a stock's value. (Divide the stock price by annual earnings per share.)
Step5
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.
Step6
Beware of debt. Check out the company's balance sheet, looking for the extent of its long-term debt.
Step7
Check cash flow - the movement of cash through the company. You'll want the company to have positive cash flow.
Comments
cc06b said
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question said
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Anonymous said
on 11/22/2005 There are many free websites available to investors to assist them in evaluating a stock. I follow many of the rules already listed. In addition, I like to start out with the list of top percent gainers on that day, as those stocks may well turn out to be great investments long-term.
I prefer stocks with positive earnings and revenue growth the latest quarter without any excuses.
Morningstar is well-known for mutual fund evaluations with their star-rating, but they do a superb job in evaluating stocks as well. And much of that site is free and available to the public. For more information you might wish to subscribe.
Look for persistence in revenue growth and earnings growth as well as free cash flow growth and a solid balance sheet.
Anonymous said
on 11/22/2005 It used to be that only full service brokers had access to detailed information on stocks. Using the internet, we all have access to almost limitless information about a stock and company. With a little patience and practive, you can find "your" most useful sites on the web. Use multiple sites to compare the same stock to see if things "add up" on a company.
Anonymous said
on 11/22/2005 If you can't take the time or don't have an interest in going into such depth, then find someone who does and can. It can be a friend or a stockbroker, but check to see how well he or she does with his or her own investments, too.