Knowledge Centre

Factors to consider while selecting a stock

Updated on 27 January 2017

Identifying a stock that can give you high returns is not an easy task. Finding out the true potential of a stock among the thousands of listed public companies requires special skills. While a lot of people struggle with how to invest in stock market, our research team stands as with a great solution. Our research team has a specialized tool for stock market analysis that provides tips for investing in stock market in the form of trade recommendations. Developed by Indices Master, a SEBI approved stock investment advisory provider, this tool is handy and serves the purpose of professional guidance from financial and stock market experts.

Before investing in stocks, consider the following points of analysis based on our expert advice:

  • 52 Week Price Range: Investment in a stock which is closer to its 52 week low price and rebounding from there is always considered as the best trading strategy in the stock market. This is because the stock has again entered in upward momentum from a low point, which makes it an attractive buy.
  • Earnings per Share: Earnings per share is profit earnings on individual share of the company. Prefer to invest in the shares of the company having a positive EPS, as companies with negative EPS always struggle to generate good profits, distribute dividends, meet cash requirements to run business, etc.
  • Price Earnings Ratio: PE ratio reflects the growth potential of a stock. If PE ratio is high, then the stock is considered as overvalued and vice versa. But investment should not be made only after considering the PE ratio. Always consider the PE ratio of other stocks in the same sector before investing. Compare the historical PE ratio chart with the EPS. If chart suggests an increase in EPS at a certain rate but PE ratio is not increasing, then you should invest in such stock.
  • Dividend: Dividend is paid only by companies that earn profits. So it is always better to invest in companies that give higher dividends i.e. at the rate of 2 per cent or above.
  • Company’s Debt: Check the balance sheet of the companies to know their debts. Avoid investing in companies with higher debts as the major part of profits of such companies goes in repaying the principal and interest on thedebt.
  • Volume: Always buy a stock that has good liquidity i.e. the volume of share traded on the exchange should be good. If the number of shares traded in a day is low, it would be difficult to buy or sell a stock. Ideal volume in a day’s trading session is 30,000 shares or more.
  • Management: Prefer to invest in shares of the company having a good management background as they always comply with rules and regulations, reducing the chances of frauds.
  • Market Capital: Market capital reflects the actual value of a company. It is the sum total of a company’s outstanding shares. Market capital is divided into three segments, small-cap, mid-cap and large-cap. So if mid-caps or small-caps segment of stocks is performing well, you can invest in them.
  • Beta: Beta is the volatility in the price of stock. Stocks having higher beta have higher risks. But along with higher risk, you can earn higher profits on them. So invest in them depending upon your risk bearing capability.

If you are willing to be a successful investor, consider the above analysis and invest in shares to gain high returns.