5 Criteria To Better Evaluate The Stock You Want To Invest In
This article is brought to you in collaboration with StockFacts. Views expressed in article are the sole opinion of DollarsAndSense.sg
When it comes to evaluating stocks, we often look to financial indicators to help us sieve out good stocks. Often, these financial indicators would include ratios such as price-to-earning (P/E), price-to-book (P/B) or dividend yield that can help us determine if a stock is worth investing into.
Beyond just financial indicators, we look at five other important criteria that you should also be considering. Some of these criteria are quantitative by nature while others give you a more qualitative understanding.
# 1 Ownership
Ownership is at the top of our list because it’s an important criterion that many investors simply ignore.
As an investor, you should know who the majority shareholders of the company you want to invest in are. Knowing this is important because your interests, especially as a minority shareholder, is heavily tied to the behaviour and interest of the majority shareholders.
Like it or not, if you invest in any of these stocks, you need to ensure you agree with the long-term view of these majority shareholders because they will ultimately have a big say in how the company will be run.
For stocks listed on the Singapore Exchange (SGX), you can easily find out the ownership structure of listed companies by using SGX StockFacts. Simply search for the company on StockFacts and click on the Ownership tab to see the ownership structure of any particular stock listed on SGX.
You can see the example below for SGX.
SGX – Ownership
Source: StockFacts, SGX
# 2 Free Float
Aside from who owns the company, another useful piece of information to take note of is the free float of a company. Free float refers to the number of shares in a company that is publicly available for trading.
A company that has a low free float may be thinly traded, offering less liquidity or quoting large bid-ask spread. As an investor, a low free float may also mean that overall investors’ interest in the stock may be low.
At the same time, if demand for the stock increases, prices could be extremely volatile since there would only be limited supply of shares in retail investors’ hands that are available for trading.
You can find out for yourself the free float of companies using StockFacts.
SGX – Free Float
Source: StockFacts, SGX
# 3 Comparable Companies
Before investing into a stock, you should familiarise yourself with comparable companies, i.e. those that are in the same industry and has similar operations. This will allow you to make a more informed investment decision.
Firstly, knowing its comparable companies allows you a point of comparison and gives you an idea of whether you are over or underpaying for the stock. For example, if the stock of a comparable company is currently trading at 10 times P/E, while the stock of the company that you wish to invest in is trading at 15 times P/E, then there must be a good reason why investors are willing to pay 50% more for a similar company.
The point is that you should know why there’s a premium being placed on the company you want to invest in. Otherwise, you could be investing in a stock that is overvalued.
You can easily find companies within a certain sector on the market by using StockFacts. This would not only help you find companies that you know, but also highlight other companies within the same sector which you could also consider investing into.
# 4 Beta
Beta is a measure of volatility of a stock compared to the rest of the stock market.
A beta that is less than 1 implies that the stock is less volatile compared to the rest of the market. A beta that is greater than 1 implies that the stock is more volatile than the rest of the market.
For example, a stock with a beta of 1.1 is likely to be 10% more volatile than the market. Investors who are less inclined to take greater risks may prefer to invest in stocks that have lower beta.
Whenever you buy a stock, you should try to find out the stock’s beta. StockFacts allows you to quickly search for stocks based on their 5-year beta.
# 5 Analysts’ Consensus
Lastly, some stocks, usually the larger capitalised ones, will be covered by several analysts from different firms.
StockFacts helps aggregate the various estimates provided by these analysts covering a particular stock. This provides a convenient way for you to gather the consolidated analysis of all analysts such as the consensus target price, valuation, earning quality and volatility.
Below is an example of the type of information that you can find from StockFacts.
While their analysis is by no means a definitive prediction of what’s going to happen in the future, it’s still useful to know the opinions provided by experts, and to compare it with your own assessments of the stock.
StockFacts Can Help You Better Understand The Stocks You Wish To Invest In
StockFacts is a free-to-use stock-screening platform that can help you find suitable stocks on SGX based on the criteria that you have set. These criteria can include financial ratios as well as the non-financial criteria that we have highlighted in this article.
If you are interested to use StockFacts, you will be glad to know that there is no need to sign up for it. You can simply go to the StockFacts webpage and use it to screen for suitable stocks for you to invest in.
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