If you are looking to invest in the stock market, there is no dearth of stocks to choose from. However, picking the right stocks can be a daunting task. Before you invest your money in a company, you need to ask yourself some key questions:
What Does the Company Do?
In order to know whether you should be investing in a company, it is important to know what the company does and what its business model is. You will usually be able to figure this out by doing some basic research on the internet.
How Is the Company’s Financial Performance?
One of the key factors that impacts the stock price of a company is its financial performance. So, make sure to check how much revenue the company is bringing in and its earnings or profit. It’s best to compare these numbers to the performance of competitor firms.
How Has the Historical Performance of The Company Been?
The past track record of the company may not define how it performs in the future. However, it is still a good idea to check the performance of the company during the last 10 years at least.
Does the Company Payout a Dividend?
Many companies distribute a part of their earnings to shareholders every quarter. This payout is called a dividend. Some companies may also choose to reinvest their earnings instead of distributing dividends. If you are closer to retirement, you should consider investing in a company that pays out dividends so it can serve as an income replacement.
What Is the Company’s P/E Ratio and Market Capitalization?
Make sure to check the ratio of the price of the stock relative to the earnings per share. This will help you know if the stock is overpriced, underpriced, or priced right. You should also check the market capitalization or size of the company. Your investment portfolio should ideally have a mix of large-cap, medium-cap, and small-cap companies.
In addition to these questions, you should also consider if the company operates domestically or internationally and whether the company has a competitive advantage over other firms. Researching the answers to these questions may help you pick out the right stocks.