How to Analyse a Share/Company before Investing?

5 min read
There are some factors that can help us in decision making while selecting stocks for investments. Some things that should be looked at while selecting a company.

Key Points to be looked at before investing in stocks

How to Analyze a Stock ?

We believe that when one buys a share/stock of a particular company, it shouldn’t be just done with the view of becoming a trader rather with a view of becoming an investor. One should think that when one buys the share/stock of a company they also become the partly owner of that company. ‘Share’ in itself means being a part of something. So, when one buys the share of that company they become a part of it.

There are some factors that can help us in decision making while selecting stocks for investments. Some things that should be looked at while selecting a company.

Thus, when investing in a company one should know about the business processes, how things work there, products of that company and many more such things.

Thus, factors that can be looked at while selecting a company to invest in can be as follows: –

Factors to be looked at while analyzing a Share / Company

1.Current Statistics :
Things such as number of employees, number of plants, standalone business details, consolidated business details, highlights of the company, etc are some of things that are included in here.

2. Milestones :
When was the company founded. Which brands and which products were launched when. The Journey of the Company. Information on Key Events, Happenings, Acquisitions, Mergers, Launches, Deals, etc in the life of the company.
When looking at the milestones the thought process of the company can be understood. Do they believe in organic growth (in-house brands, internally sourced growth) or in inorganic growth (acquired brands, growth through external sources).

3.Brands/Products :
What the company is known for? What it sells/produces/markets? Are there any new launches/innovations in pipeline?
Will provide a basic understanding of the company’s business. Information on how the brands/products are performing. The position of the brands/products in the market, how have their positions changed in the market, what are the possibilities of these brands/products becoming market leaders.

4.Promoter Information :
Who are the promoters of the company? How much do they hold in the company? Gives us information on the people behind the business/company. Whether the promoter has pledged their own shares? If yes, then what percentage?
This is a very important factor. From the promoters we also come to about the Corporate Governance. The integrity of the promoters also impact the image of the company.

5.Manufacturing Details :(if the company is involved in manufacturing)
What the company manufactures (in case it is a manufacturing company)? How many manufacturing plants do they have & where are they located? It’s production details like production capacity and actual output.
The location advantages of their manufacturing plants also is of importance.

6.Target Market :
Where does the company has its main focus on? What are the target segments of the company? Clients or end users of the company.
For example, is the entertainment industry focusing more on youth, consumption industry is targeting the youngsters or FMCG sector which target all age classes.

7.Top Competitors :
Who are the competitors/peers of the company? Basic insight into the competitors/peers of the company.
This also another important factor. From here one will get to know where the company is positioned in comparison to its competitors.

8.Major Shareholders :
In addition to the promoter and promoter group, it helps to know who else owns the shares of the company. If some key investor, company, mutual fund, etc. hold shares in the company, then it is good to know that.

9.Subsidiaries :

Does the company own any subsidiaries? Are those wholly owned or partially owned? Information on the subsidiary’s business.
The number of subsidiaries owned by the company tell a lot about them. If they own too many subsidiaries its not good, and if they own only limited number them they seem to be focused.

10.Annual Performance :
Annual Performances should be studied on the following parameters: –

  • Gross Sales (Revenue)
  • Operating Profit
  • Profit After Tax (Net Profit)
  • Return On Capital Employed (ROCE)
  • Price-to-Earnings (P/E) Ratio
    Annual performance numbers in the last 10 years and their annual growths (percentage change). When you see the numbers, one might see some trend/pattern in the numbers and also how these numbers have changed YoY.
    It will also give information on how the company has grown, how its PE valuations have changed, its operating efficiency, etc.

11.Quarterly Analysis :
Quarterly Performances should be studied on the following parameters: –

  • Gross Sales (Revenue)
  • Operating Profit
  • Profit After Tax (Net Profit)
    The Quarter-on-Quarter numbers of the last 12 quarters should be studied and their Quarter-on-Quarter growths (percentage change). What is the trend in the quarterly numbers and how the numbers have changes QoQ.

12.Company’s Share Performance :
Information on how the stock of the company has performed in the last 1 year. The shares performance in comparison to an Index (Sensex/Nifty).
What are the 52 weeks High & Low. If a company is trading at 20-25% below their 52-week high and it also looks good in other parameters, then that company can definitely be kept in your radar.

13.Share Holding Pattern :
 How much stake do the promoters hold in the company? Which mutual funds have their holding and in what percentages, any government companies such as LIC or any Foreign company has notable share, what amount is held by the general public; these all provide a lot of insight.

14.Latest Financials :
Here, the key financials of the company should be studied and analyzed.
When studying any company, these are the key financials that one should first look at: –

Majority of the factors here are qualitative rather than quantitative. Qualitative analysis of a company is very important. One shouldn’t just look at the numbers.
If one is able to or wants to analyze any company then they could use the above mentioned parameters.

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