How to Analyze Stock

Contributor, Benzinga

Want to jump straight to the best? Most of our users prefer Interactive Brokers for stock trading.

To understand the stock market, it’s important that you can read and analyze stocks. There are a number of ways to do this. Some people are more comfortable doing all of their own research and analyzing stocks independently. Others might like to have the help from a stock advisor. So which way is the best way?  Benzinga has put together this guide to help you understand all of your options.

5 Ways to Analyze a Stock

Take a look at the number of ways to analyze a stock and familiarize yourself with these terms.

P/E ratio:

A P/E ratio is short for a price-to-earnings ratio. This is a commonly used method to analyze stocks. You can determine the P/E ratio of a stock by using a simple math division. To find a stock’s P/E ratio, you divide its market value per share by its earnings per share. You’ll use this ratio to help you determine how valuable the stock is. Once you know the stock’s P/E, you can compare it to the stock’s competitors. Typically, the lower a price-to-earning ratio is, the more valuable the stock is.

Earnings per share:

You can also analyze a stock by looking at its earnings per share.  You may also see this referred to as a stock’s EPS. This will give you an idea of how much the company is earning and whether investors are benefiting from that. If a company’s EPS is growing, that can be a good sign. Most investors will become interested in purchasing stock in a company when it is earning good money. Generally speaking, the higher a company’s earnings per share is, the more those shares are worth.

PEG value:

The PEG value stands for the price-to-earnings growth ratio. This ratio is similar to the P/E ratio because it also compares a stock’s market value to its earnings per share. The PEG adds another factor by considering the company’s growth. To calculate a stock’s PEG value, you’ll need to know the P/E ratio and the 12-month growth rate of the company. Using the company’s growth rate over the past years, you can estimate the company’s growth rate in the future. In most cases, look for a stock that has a PEG value lower than 1.

Book value:

Another way to analyze stocks is using information to find undervalued companies that have experienced a lot of growth. To find these companies, you will want to use a price-to-book ratio. This may also be referred to as a P/B ratio. Before you calculate the P/B ratio, you will need to know the company’s book value of equity.

You can find this by subtracting the book value of a company’s assets by its book value of liabilities. Once you know this, you can calculate the price-to-book ratio. To find this ratio, divide the market price of a company’s stock by the book value of equity. 

Debt-to-EBITDA:

This is another ratio that can help you determine and rank the value of a stock. EBITDA stands for earnings before interest, tax, depreciation and amortization. It is used to evaluate the performance and value of a company. The debt-to-EBITDA ratio is used to measure the ability for a company to pay off its debt. If your calculation shows a high debt to EBITDA ratio, it may mean that the company is carrying too much debt and could be in trouble.

Best Places to Get Stock Recommendations

Instead of going through the ratios yourself to figure out which stocks to invest in, you might decide to seek out recommendations. There are a number of reputable sources online that can help give you an overview of the stock market. These sources can recommend valuable stocks to invest in and help you understand the stock market better overall. 

Stock terminals.

Stock terminals are computer systems that allow you to access real-time financial data. Many people refer to the Bloomberg terminal when talking about stock terminals. The Bloomberg terminal has been around since the 1980s and it has built up quite a reputation over time. It allows users to not only monitor real-time financial data, but also offers the ability to access breaking news and place trades.

The Bloomberg terminal is quite costly, however, and you can expect to pay between $20,000 to $25,000 per year for this access. Luckily, it’s not the only stock terminal available in today’s market. 

BZ Pro.

Benzinga Pro is Benzinga’s answer to the lack of affordable stock terminals available on the market. We are proud to offer this alternative to Bloomberg terminal to allow investors access to important financial data without breaking the bank. It offers a real-time newsfeed that can update you on breaking news in the investment world. You can expect to see updated information on activist stakes, earnings releases, conference call key points, analyst ratings, rumors and many more alerts.

With BZ Pro you can create an Excel-compatible watchlist to keep an eye on the stocks most important to you. You can screen U.S. stocks by market capitalization, price and sector. The BZ Pro platform also allows you to view a breakdown of a stock’s peer group, financial statements and essential SEC filings.

This product is designed for the everyday, average investor to give day traders the tools they need to invest successfully. The platform starts at $99 per month, offering a much more affordable stock terminal option.

Subscriptions:

Another cost-efficient option is to enroll in a subscription service. Many of these subscription services are with stock advisors. The benefit of enrolling in this is that it can give you advice as well as information about the stock market. If you decide to analyze stocks yourself or use a stock terminal, you are left to make your own conclusions about which stocks are valuable. Enrolling in a stock advisor subscription program can help you make quick decisions about which stocks to invest in. 

Morning Star

Morning Star’s service offers another perspective. It focuses on investments that produce consistent returns more than it does on using technical charts to predict stock value. It offers an analysis of stocks, mutual funds and exchange-traded funds (ETF). Morning Star also provides the pros and cons for all investments. You can use its research to compare investments to each other and see how the investment has performed over time. Morning Star also offers a stock and mutual fund screener that allows you to find investments by searching hundreds of key data points. 

Many find using this service can empower you to make better investment decisions without consulting an investment advisor. Morning Star offers a $199 premium subscription service, as well as a free service for a more simplified version. You also have the option to test the premium service with a 14-day trial

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How to Navigate the Stock Market

The stock market can be a confusing place. There are a number of options you can choose from when it comes to determining which investments are right for you. You can use the ratios provided in this article to analyze stocks for yourself. You might decide that using a stock terminal like BZ Pro would be beneficial for you. A subscription service might also work out well for you if you’d like to receive more pointed advice to help you make your investment decisions.

Ultimately, the best way to analyze stocks is the one that works for you. Consider your options and decide how comfortable you are with navigating the stock market on your own. Compare services to figure out which one works best for your budget and investment goals.