How to select a good stock
Selecting a good stock has always being a big problem to new investors, even seasoned marketers find it challenging to select a profitable stock. With the numerous companies quoted in the stock market it is wise to know which company to invest in. It is not wise to buy a stock from a company because you are fond of it; you only buy from a company after a careful research.
Below is what you should keep in mind before buying any stock from a company, to make a viable investment that will keep you smiling all the time.
Quarterly result. Quarterly result is the report on the financial statement of firm for a period of three month, a good quarterly result that hit above analyst’s estimate means the company is performing wonderfully and this automatically shut up the stock price and picking a stock from this company is profitable. While a disappointing quarterly result will reduce the value of the stocks , quarterly result are compared with the previous year’s performance of a stock, a significant growth means that a increase in stock performance well while a slight growth means poor stock performance.
The year is divided into 12 calendar month , with up to four quarters, if a company’s financial year start from January it first quarter will start from February, march, and April, and the 2nd , 3rd and 4th quarters start from may, august, November respectively. factors affecting sock prices
if a company perform in the first quarter very well, wait to see its second quarter ,before buying, if it is good then go and buy . If a company perform well in the first, second, and third quarters very well then it will the most likely, perform better in the fourth quarter, but if a company perform badly in the first quarter it will likely recover in the second quarter therefore wait to see its third quarter before buying.
Also check the financial statement of the company for the past years to ensure that its current profits are from re-occurring activities and not from one-time activities like sale of a real estate or bank loan.
Dividends bonus: you can know if a company give dividends to its shareholders from it 3rd quarters result. You can get this information from a stock broker or the company’s financial publication. Some companies do not give dividends bonus, this is why many investors consider this before picking stocks. see our article on stock exchange
From the third quarter report .you see the company result of earnings, tax and profits that come before the announcement of the final result. If the company declares a dividend bonus last year it may most likely not declare it till after a year or two. Also a company that already has billions of shares capital may find more difficult than a company with less share capital volume.
Market capitalization: it refer to the total amount of share capital the company has at its disposal from all the shares its investors bought. Companies are of two types large capitalization company and small capitalization company, this is very important to an investor because a company with 10 to 20 billion share capitalization will have to get large supply and demand because of large volume, it need to make enough profits to satisfy all it numerous shareholders and therefore it stock value hardly rise, it may not want to declare dividend bonus in order not overcrowd its already large volume. The demand for the stock therefore falls and because investors won’t patronize stocks without dividends bonuses. . While a company with manageable stock volume need only small volumes of spellings to make profit and affect its stock value. This stock has fewer shareholders to satisfy and therefore the chance of giving out dividend bonus will be high.
Other factors to consider are earning per share, is the one of most important indicator of the profitability of an investment, to the profit made per share, a compare higher earning per share tells you that it can pay higher dividends compared to a company with low earning per share,.
Also know when the financial year of firms and institutional sponsorships is. see our articles on private placement