How to Research Stock Investments

Researching stocks involves gathering information about companies in your investment portfolio . Investors analyze financial data, assess qualitative factors and use tools like stock screeners to get a clear view of a stock’s potential. Working with a financial advisor can offer you additional guidance, as they can analyze investments and manage them for your portfolio.

Stock Research 101: Quantitative vs. Qualitative Approaches

Quantitative research focuses on numerical data and financial metrics that reflect a company’s financial health and performance. This method involves analyzing balance sheets, income statements and cash flow statements to assess profitability, liquidity and overall stability.

Qualitative research looks beyond the numbers to evaluate non-financial aspects like the quality of management, brand strength, competitive positioning and industry trends. Qualitative research provides context for the numbers, offering insights into the company’s potential for growth and resilience in changing market conditions.

Key Metrics to Understand

• Earnings per share (EPS): EPS measures a company’s profitability by dividing its net income by the number of outstanding shares. A higher EPS indicates greater profitability.
• Price-to-earnings ratio (P/E): The P/E ratio compares a company’s current share price to its earnings per share. It helps investors assess whether a stock is overvalued or undervalued relative to its earnings.
• Return on equity (ROE): ROE measures how effectively a company uses shareholders’ equity to generate profits. A higher ROE indicates more efficient use of equity capital.
• Debt-to-equity ratio : This metric compares a company’s total debt to its shareholders’ equity, offering insights into its financial leverage and risk.

How to Research Stock Investments

If you want to research stock investments for your portfolio, here are six general steps to help you get started.

1. Evaluate the Fundamentals

Investors can obtain this information from various sources, such as the company's annual report ( Form 10-K ) and quarterly report (Form 10-Q), which are publicly available on the company's website or through the U.S. Securities and Exchange Commission (SEC) EDGAR database . These documents include the balance sheet, income statement and cash flow statement.

By analyzing the balance sheet, investors can assess the company's assets, liabilities and equity to understand its financial stability. The income statement provides insights into the company's revenue, expenses and net income, helping to gauge profitability. The cash flow statement reveals how effectively the company generates cash to fund operations and growth.

Key metrics derived from these documents, such as earnings per share (EPS), allow investors to compare companies and determine whether their stock is undervalued or overvalued in the market.

2. Examine These Qualitative Factors

First, assess the leadership team as it plays a significant role in driving strategy and growth. Its corporate culture can also offer insights into its priorities and potential resilience in challenging times. Investors can gather this information from sources like investor presentations, industry reports, news articles and interviews with company executives.

Examine its market share, brand strength and innovation capabilities. Understanding the industry trends and how the company adapts to changes, such as technological advancements or shifts in consumer behavior, will provide further context for the stock price .

3. Review Historical Performance

By examining the stock's price movements over several years, investors can identify consistent growth, volatility or resilience during market downturns . Comparing the stock's performance to that of its sector peers can provide insights into its competitive position and market share. Learning how the broader economy has impacted the stock's performance helps investors understand how external factors, like interest rates or economic cycles, might influence its future prospects.

4. Using Stock Screeners

Stock screeners are digital tools that allow investors to filter stocks based on specific criteria, such as market capitalization, price-to-earnings (P/E) ratio , dividend yield and sector. These tools help streamline the process of identifying potential investments that align with an investor's strategy. For example, an investor might use a screener to find stocks with a low P/E ratio, indicating they could be undervalued.

Some of the most popular stock screeners include Finviz, which offers a wide range of filters and visual data, Yahoo Finance, known for its user-friendly interface and TradingView, which provides advanced charting and screening options. Many brokerage platforms also offer built-in stock screeners, such as those provided by TD Ameritrade and E*TRADE .

5. How Does the Stock Fit in Your Portfolio?

Determining whether a stock fits in your portfolio involves evaluating how it aligns with your overall investment strategy, risk profile and diversification goals. For example, if your strategy is focused on long-term growth with a moderate risk profile, adding a high-volatility stock in a speculative industry might not be a good match.

6. Monitor and Reassess Your Investments

Regularly reviewing your portfolio allows you to spot changes in a company's fundamentals, such as shifts in management, declining earnings, or new competitive threats. Additionally, economic conditions and market trends can make it necessary to adjust your portfolio to align with your investment strategy and make decisions about whether to hold, buy more or sell.

Bottom Line

There are standard methods for researching stocks, but how you use that information depends on your financial goals. By combining quantitative data with qualitative insights and using tools like stock screeners, you can evaluate a stock's fundamentals, assess its fit in your portfolio, or reconsider your holdings.

Tips for Investment Planning

• A financial advisor can help you analyze and manage investments for your portfolio. Finding a financial advisor doesn't have to be hard. SmartAsset's free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you're ready to find an advisor who can help you achieve your financial goals, get started now .
• If you want to know how much an investment could grow over time, SmartAsset's free investment calculator could help you get an estimate .

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