This article of our Stock Trading Course for Beginners will focus on stock analysis. Specifically, we will be looking at the parts of Fundamental Analysis and the basics of Technical Analysis.
When you are doing stock analysis, using fundamental analysis looks at a company’s performance. These typically involve balance sheets, assets and liabilities, cash flow, etc. In order to make analysis faster and easier, stock traders who use Fundamental Analysis will look at a company’s ratios. The following are some of the most important:
- Market Capitalization
- Earnings per Share
- Price to Earnings
- Shares Outstanding
- Shares Float
- Performance Year to Day
Market capitalization is how much a company is worth. It is the value of everything the company owns and/or makes. Companies can have a large-cap, mid-cap, or small-cap ranking. Large-cap is usually over $10 billion, mid-cap is between $2 and $10 billion, small-cap is $300 million to $2 billion. Anything below can be considered “micro-cap.”
Earnings per share is how much profit a company has divided by the number of stock shares. A higher EPS means a company is making more money and would generally be a good investment. It is possible for a company to have a negative EPS which would mean the company is losing money.
Price to earnings looks at how much each share is worth compared to how much each share earns. To get P/E, divide price by earnings. The number is based on how much you would have to invest to get back $1 in earnings.
Shares outstanding is the amount of shares a company has in total.
Shares float is the number of shares actually available for trading.
Performance year to date is how much profit a company has earned from the start of it’s calendar year to the current day.
Traders read through these statistics to see how well a company has done in the past so they can decide if buying the company would most likely be a profitable investment.
When you are doing stock analysis, using technical analysis looks at a company’s charts. We will look at the basics of charts before covering them in the next section.
The following chart shows a company going up in value and is bullish:
The following chart shows a company going down in value and is bearish: