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You can find the stock market with a list of companies from different sectors or industries giving lucrative returns to investors as well as traders to earn some profits with short-term trading. However, buying the stocks blindly without doing research or analysis can cost you in terms of losses or you might wait for many years for the capital gains on your investment.
There are many factors that affect the stock market in India and individual stock prices movement of the companies. When you do research you will be able to analyse such factors that determine the stock price and are also responsible for its movement in the stock market.
But the question right here is what to research while analysing such factors that can affect the stock price or can be the decision-making factors while buying a stock. Hence we brought her the key points that you should research and analyse while purchasing a stock of a company.
Though there are various points to consider before buying a stock for long term but researching and analyzing all the factors are not possible for the normal investor. A professional research analyst or financial analyst can do that thing thoroughly. But here are a few fundamental as well as technical factors that you can also research about the stock of the company.
As Warren Buffett once said, “You should never invest in a business you cannot understand.” Yes, before you buy shares of any company from the investment perspective you need to understand the business model of the company. What does the company manufacture or produce or provide the services along with various business verticals and identify the core business of the company.
You should understand how the company works in meeting its clients’ needs and what is the manufacturing process and its plant units. And if the company is service sector, then what kind of exact services it is offering to whom and what are the other business verticals? You should also have an understanding of the business or industry in which it is operating.
The second thing you need to research while buying a stock of a company is to analyse what is the main source of income of the company. This means how does company earns its revenue and what the various other segments of the business from which the company is earning its revenue. Check the market share of revenue in the industry and what are the operating income and margins.
Also, check the operating margins and net profit margins from various segments or overall EBDITA and NET Profit margins of the company. It will help you determine whether the company is profitable or not and has the scope for revenue growth in the future or not. You can easily find revenue and income-related information in annual reports and quarterly or annual financial results.
Now do some research on knowing about the people in the top management of the company. Who are the founders, co-founders and promoters of the company? Check their educational backdrop and experience in the industry with a track record of their role in this company or if they worked with other groups of companies since they are working in this industry or any other industry.
Who are keyman sitting at the helm of the company, those positions include chairman, MD, CEO, CFO and non-executive directors of the company? You can also check their shareholdings in term of equity shares, their salary and their role in the company. It will help you to know who is the key person running the company or involved in the decision-making at the management level. You can find management information on the website of the company or in the annual report.
There is a quote by a legendary investor Warren Buffett, “Never Invest In Something You Don’t Understand”. If you as an investor understand the business of the company, its operating structure and model, its revenue stream & income and align with the management of the company, you can therefore check the fundamentals of the company. It will help you understand, how much the company is fundamentally strong and whether you should invest or not.
Generating revenue every year would be not enough for a company there should be significant growth every year in terms of operating income and net income. This is one of the very important parts while researching and analysing any company to know its performance.
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