Skip to main content

How to Choose Stocks


The budding stock-market investor doesn't have to just cope with the erratic nature of the market; he also has to understand the underlying metrics of stocks to make sense of them. Here we have compiled for you a list of basic stock-related metrics.



1. Stock price: Stock price is simply what a stock costs in rupees. If the stock price appreciates, you have got gains on the stock. If it declines, you are making losses. Since investors' fortunes are tied to the stock price, it is keenly tracked by them.


While the stock price is widely followed, it communicates very little about the stock on its own. In order to put stock price in perspective, you will need to combine it with some other metric such as earnings. For instance, when seen in conjunction with earnings, it tells you about valuations. More on this later.


Note that you can't say that a stock is expensive or cheap just by looking at the stock price; for that, you need to look at the valuation. A stock priced at Rs 10,000 can actually be 'cheaper' than a stock priced Rs 10 when seen in terms of valuation.


2. Stock-price chart: A stock-price chart is plotted to see the progression of stock price over time. The 52-week range of stock price is frequently tracked. It tells you the highest and the lowest points the stock price has touched during a year.


3. Market capitalisation: Shortened as 'market cap' or 'mcap', it tells you how big a company is. Market cap is obtained by multiplying the stock price by its outstanding number of shares. Roughly, a company with a market cap of up to Rs 5,000 crore is a small cap; one with an mcap up to Rs 25,000 crore is a mid cap; and the companies over that are large caps.


4. Volume: The volume number indicates how many trades are executed in a particular stock in a particular period. Always invest in stocks with reasonably high volumes (in at least five digits) as it is easy to both enter and exit such stocks. Stay away from stocks that have anaemic volumes.


5. Earnings per share (EPS): EPS is calculated by dividing the total profit of a company by its total number of shares. EPS splits the entire profit of a company across its shares.


6. Price-to-earnings (P/E) ratio: As stated earlier, it's not the stock price but valuation that tells you how expensive a stock is. The P/E ratio is one of the most important valuation tools. It is calculated by dividing the stock price by 'TTM' earnings. TTM stands for trailing twelve months. Hence, TTM earnings are the earnings of the last twelve months or four quarters.


A low P/E means a cheap stock. A high P/E means an expensive stock. But wait! Before you overgeneralise this statement, be informed that not all low P/E companies are good companies. Nor are all high P/E companies bad choices. It's the financial strength and the future outlook of a company that drive valuations. You need to dig deeper in order to know if a company's P/E is justified or not.


7. Price-to-earnings-growth (PEG) ratio: A better tool than the P/E ratio is the PEG ratio. It is calculated by dividing the current P/E of the stock by its earnings growth rate of a specific period. Don't worry about the underlying calculations; you can find readymade PEG on the stock pages on the Value Research website. A PEG of less than one implies a cheap stock, that of more than one an expensive stock and a PEG of around one indicates a fairly priced stock.


8. Price-to-book (P/B) ratio: The P/B ratio is another valuation tool. It is obtained by dividing the stock price by book value. Book value of a share is its worth in the company's books. A P/B of under one indicates a cheap stock. But beware, you can't read too much into this metric as book value isn't a very reliable tool; the actual worth of share could be very different from what the company thinks it to be.


9. Dividend yield: Dividends are the profits that companies share with their shareholders. Dividend yield is obtained by dividing the dividend per share by the stock price. The higher the dividend yield, the more money you get as dividends.




Invest Rs 1,50,000 and Save Tax upto Rs 46,350 under Section 80C. Get Great Returns by Investing in Best Performing ELSS Funds

Top 10 Tax Saver Mutual Funds for 2018

Best 10 ELSS Mutual Funds to invest in India for 2018

1. DSP BlackRock Tax Saver Fund

2. Invesco India Tax Plan

3. Tata India Tax Savings Fund

4. ICICI Prudential Long Term Equity Fund

5. Birla Sun Life Tax Relief 96

6. Franklin India TaxShield 

7. Reliance Tax Saver (ELSS) Fund

8. BNP Paribas Long Term Equity Fund

9. Axis Tax Saver Fund

10. Birla Sun Life Tax Plan



Invest in Best Performing 2018 Tax Saver Mutual Funds Online

Invest Best Tax Saver Mutual Funds Online

Download Top Tax Saver Mutual Funds Application Forms


For further information contact SaveTaxGetRich on 94 8300 8300

------------------------------------

Leave your comment with mail ID and we will answer them

OR

You can write to us at

Invest [at] SaveTaxGetRich [dot] Com

OR

Call us on 94 8300 8300



 

Popular posts from this blog

Franklin India High Growth Companies Fund

Franklin India High Growth Companies Fund Online One of the key developments that the Street is keenly waiting for is a cut in interest rates by Reserve Bank of India . With demand rising gradually, a rate cut is expected to boost earnings growth for companies. In such a situation, schemes which invest in high growth companies are best suited, especially when seen from a long-term perspective. One such scheme is Franklin India High Growth Companies Fund. Fund managers Anand Radhakrishnan, Roshi Jain and Srikesh Nair strictly follow valuation parameters when it comes to choosing stocks.Valuation parameters, such as enterprise value, price-to-earnings growth ratio, forward price-to-sales ratio and discounted earnings per share, play a critical role in selecting companies for investments. Taking into account these parameters, the fund managers invest in companies which are poised for high growth in their respective sectors. This approach has been in favour of the scheme and it has perform...
Read more

L&T Growth

Invest in Mutual Funds Online Download Mutual Fund Application Forms   L&T Growth Fund (LTGF) is open-ended diversified equity fund that invests predominantly in large caps. LTGF follows the growth style of investing and has been in existence for over 10 years now.   Type of scheme Open-ended Category Diversified equity Sub-category Large Cap Style Growth Launch date September 17, 2001 Risk-Return proposition High risk-Average return   Investment Objective and Proposition The fund's primary investment objective is "generate long term capital appreciation income through investments in equity and equity related instruments; the secondary objective is to generate some current income and distribute dividend. However, there is no assurance that the investment objective of the scheme will be achieved." Following large cap ...
Read more

Common errors that couples make while investing

Most couples plan their strategies together but make mistakes while investing. Here’s how they can avoid the common errors Make no mistake. Ignorance is no longer bliss. In fact, many couples goof-up while investing together because they are not financially transparent to each other and don’t share a common goal. KEEPING SECRETS You may find questions from your spouse as an intrusion into your privacy, but financial planners believe that sharing financial details with each other is the first step that a couple takes towards their family financial goals. If you plan to invest together, then it’s important that you should be transparent to each other on the financial front. The whole idea is that you should be able to determine how much you will set aside for investments after making all the deductions for personal and household expenses. IMBALANCED APPROACH As a couple, you may have huge assets and hold stocks, but it’s important that you should direct a part of the investments for emer...
Read more

Mutual Fund Exit Load Changes

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300 Mutual Fund Exit Load Changes AMCs don't communicate about any change in exit load directly with investors, but do update on their website   The exit load applicable to your investments is the load which existed at the time when you invested in the particular fund. Any subsequent changes in the exit load will not be applicable to your investments.   However, Asset Management Companies ( AMCs ) periodically publish addendums in the newspapers, which state any change in exit loads of specific schemes managed by them. Such changes are also posted on their websites. However, a direct communication to an investor is not made, considering the costs involved in doing so. In their own interests, investors should not only track the performance of the funds they i...
Read more

Debt Mutual Fund Dividends are Taxable

DDT is deducted when a non-equity fund declares dividends. Equity and balanced fund dividends are tax-free The AMC is correct to deduct the dividend distribution tax (DDT) as it is mandated by tax laws. DDT in mutual funds is deducted every time a non-equity fund declares dividends. Equity fund and balanced fund dividends are tax-free . It is possible that you have invested in a non-equity fund for the first time or have received the dividend under a non-equity fund for the first time. That is why this is the first occasion when you have come across DDT.   The rate at which non-equity schemes deduct DDT has also gone up after the July 2014 budget. This is due to a change in calculation methodology. Earlier, if the fund has to declare a dividend of R 100, it used to make a provision for R 128.3, paying R 28.3 to the taxman and distributing the balance to the investor. This allowed the investor to bear less tax since the effective tax rate was 22.07 per ce...
Read more
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now