Buying the stocks of companies that interest you is a great way to start investing. But how do you know which companies might be better bets than others? It’s on you to do some research, and to look at some key numbers. Fortunately, that information is readily available.

Tactics and considerations:

It’s important to examine some key numbers to get an idea of how well a company is doing, these include:

  • Revenue, or sales: This is income that a business creates from its normal business activities, usually from the sale of goods and services to customers. Think of it as the lifeblood of a company—without revenue, it can’t function for long. An increase in revenue over time may show that the company is growing.
  • Net income: This is how much profit a company has made after paying its expenses, debt payments, and taxes, among other things. You can think of it as similar to the cash you have left over after you’ve paid all your expenses for the month.
  • P/E ratio: The price-earnings ratio is a mathematical formula that measures a company’s stock price compared to its earnings per share. You can find out more about the P/E ratio here.
  • 52-week range: It’s the highest and lowest price a stock has traded over the course of the previous year. It can help you figure out whether you’re purchasing a stock near the top or bottom of its range.
  • Earnings reports: Public companies must file information about their performance every quarter. Companies file their quarterly paperwork, called a 10-Q, with an agency called the Securities and Exchange Commission (SEC), which is the federal agency overseeing publicly listed companies, to make sure they are following financial reporting regulations. These reports are free to the public to view at any time. While earnings reports may seem complicated at first, you may be surprised how much you can learn by simply sitting down and digging in. (You can learn more about earnings reports here.)
  • Consider non-numerical information, such as news reports, company press releases, and publicly available reports from management, such as annual or quarterly letters.  You can keep up with market news in the “Your Money in the News” tab on Stash .
Jargon Hack

What is 52-Week Range?

52-Week Range

The highest and lowest price a stock has traded over the course of the previous year.

Find out

Example of researching a stock:

In the third quarter of 2019, Acme Co. has $10 million in annual revenue. It reports net income of -$9 million, or a loss. It has a P/E ratio of 5, when the industry average is 20. The stock price is $8, when the 52-week range is between $8 and $50. A quarterly letter from the company’s CEO talks about ongoing litigation related to a faulty product, and a management shakeup that includes the departure of the company’s chief financial officer.

Though it’s important not to judge a company based on a single quarter, given the size of the loss, the low share price, and the CEO letter, something is clearly going on with Acme Co. It might be a good bet to avoid purchasing the company’s stock for now!

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