Due diligence is the investigation of a potential investment like a stock. And when you invest in stocks, you should never forego doing your due diligence. The following are some of the easiest way to research a company and its stock.
Look at the company’s Education Websites market capitalization, which tells you just how big the company is by checking the total dollar market value of all its outstanding shares.
The capitalization tells you a lot about the volatility of the stock, the broadness of the ownership, and the potential size of the company’s end markets.
Large-cap and mega-cap stocks usually have more stable revenue streams and lower volatility. Medium- and small-cap stocks, on the other hand, might only serve certain areas in the market and have higher volatility. Check what stock exchange it trades on, too.
Check the Revenue and Margin Trends
It’s also best to look at revenue and margin trends first. Look up financial news sites and search for revenue and income trends for the past two years.
The websites provide historical charts showing the company’s price movements over time. Also, they give the price-to-sales (p/s) ratios and price-to-earnings (p/e) ratios.
Find trends in both of those figures and note whether the growth is choppy or consistent. See if there are any major swings in either direction. Do the same analysis with profit margins by going directly to the company’s website to check their annual and quarterly financial statements.
Industry and Competitors
After Forex Brokers List looking at the company, look at the industry in which it operates, as well as its competitors. Compare the margins of two or three rivals.
By looking at the major competitors in the company’s business/es, you might be able to see the size of the end markets for its products.
Management and Ownership
Check whether the company is still run by its founders or if the management and board shuffled a lot of new names.
As you will find, the company’s age plays a big role here. Younger companies usually have more of its founding members around.
Check the bios of the top managers and check what kind of experiences they have. To be quick, you can find this information either on the company’s website or in its Securities and Exchange Commission (SEC) filings.
Further, check whether the founders and managers hold a high proportion of shares and what amount of the stocks are held by institutions. High ownership by managers means good news, while low ownership might mean something negative.
Stock Price History
You should also know how long all share classes have been trading, and check both the long- and short-term price movement.
See whether the stock price has been choppy and volatile, or smooth and stable. This can tell you the kind of profit experience an ordinary owner of the stock ha seen. This can also influence future price movement.
Continuously volatile stocks usually have short-term shareholders, and such a quality can add extra risks to you as an investor.