Do you know what to check before buying stock; just buying shares watching the news may result in loss. There are 12 checkpoints to investigate before investing.
What factors to consider when buying stocks confuses people. There are 12 important check points that need to be investigated before investing. Industry PE ratio should, Promoters holding, company Dept, investment type, dividend yield, promoters pledge, previous 5 years price chart, founders, current owners, investors, running and upcoming projects.
What to check before buying stock beginners must know
To analyze stocks for beginners it is necessary to do a good research about the company. Some important factors are discussed below that are necessary to check before buying stocks of various category such as Reliance power, Tata, Fertilizer stocks, Solar shares, Electric share or any.
| S.no | Helpful factors to check before buying stock |
| 1. | Industry PE ratio. |
| 2. | Promoters holding. |
| 3. | Company debt. |
| 4. | Investment type. |
| 5. | Dividend yield. |
| 6. | Promoters pledge. |
| 7. | Company price chart. |
| 8. | Company overview. |
| 9. | Founders. |
| 10. | Current owners. |
| 11. | Investors. |
| 12. | Projects. |
1. Industry PE ratio
The company PE ratio should be less than 17%.
What is the industry pe ratio in the share market?
PE ratio is the company’s share price proportion to its earning per share. A PE ratio more than 17% is considered high. The high PE ratio could mean the company share price is overvalued.
Go to the company website and check the PE ratio. It should be less than 17%. If not found on their website then search on the internet or try to contact the concerned person.
2. Promoters holding
Promoters holding should be more than 50%.
What is a promoter holding in the share market?
Promoter holding is the percentage of shares owned by the company’s promoter. Promoters are none other than company founders who hold the majority of stake in company capital.
Check and investigate about the company promoter holders whether they are company founders or not, if not then why and who? If founders’ children are company promoters then it’s also ok.
3. Company debt
Companies should not have more debt.
What is the company debt ratio?
For their growth and other expenses debt is the amount of leverage used by a company in terms of total debt to total assets.
To get the companies correct, debt ratio you should divide total debt by their total asset.
4. Investment type
The mutual funds and foreign institutions (FIIS) investment should be more and more in the company.
What is Foreign institutional investment?
They are institutional investors or entities from another country investing in your country. They usually invest in stocks, bonds and securities etc to get a good return.
What is a mutual fund in the stock market?
Mutual fund is an investment money in multiple securities such as stocks, bonds and short term debts. A good mutual fund portfolio is created by investing in all 3 assets: stocks, bonds and short term debt.
You should check before investing or buying the share: foreign investment and mutual funds investment should be more of that company.
5. Dividend yield
Dividend yield should be more than 1%.
What is the dividend yield in the stock market?
A certain amount a company pays to shareholders for owning a share of their stocks divided by its current price.
6. Promoters pledge
Promoters pledge should be 0 or nearby 0.
What is pledge in the share market?
Pledge meaning mortgage. Company promoters/owners pledge their shares to arrange finance to grow their company or to recover various losses.
7. Company price chart
Current price – Check the current price status and consistency. Whether the price is decreasing or increasing constantly.
Price chart last 5 years – It is good to analyse the last 5 years price chart to get an idea of their consistency.
8. Company overview
Mast read the basic information about the company including its establishment date and other details.
9. Founders
It is good to know the founders of the company before investing in it. After getting their name you can check their past and current status including finance and other activities.
10. Current owners
When the company is too old, the founders may be different and current owners may be different. You should check the current owners and their past financial and other information.
11. Investors
It is always good to know which personalities, institutions or foreign institutions are investing in the company and how much they are investing.
12. Projects
Past projects – Check how many projects are completed and how many are still pending check their pending date.
Current running projects – Check the current projects name, category and status.
Upcoming projects – Enquire about companies future projects.
I have prepared some important checkpoints which you must go through before investing in any share market company. I am sure these points will definitely make your research easier and worth it.
Conclusion – Now you know how to evaluate a stock before investing. Not only looking at the price 5 year chart but there are multiple factors which are discussed here that are important before investing in any share. These 16 points will definitely help investors to research about the company and make strategies when buying stocks.
