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Learn to evaluate stocks as a professional

Trading

6 min read

IQ Option offers a large amount of products related to equities: the list of companies available in the CFD section is really long. Obviously, to be able to improve your trading on this type of instruments you have to be able to evaluate a company. Read this article to learn more about the times when you can buy at a discount, or sell with a prize.

Earnings per share (EPS)

Commercial companies are created for the sole purpose of obtaining a profit. The greater the gain, the better. Not being able to meet the estimates of financial experts and investors in terms of earnings puts a company at a strong disadvantage. The rest of the market becomes more cautious in money matters and the stock price is set to fall.

If the company shows signs of stagnation or, even worse, negative earnings per share, it is generally considered a sub-optimal investment. Companies that show earnings per share in growth, on the other hand, deserve your attention and must be analyzed thoroughly.

Screenshot 3 3Information of this type makes it possible to make better investment decisions

Price-earnings ratio (P / E)

Profits alone do not help when comparing two or more companies. Let's say company A has profits of $ 1 million, its shares are worth $ 100. Company B, on the other hand, can boast earnings of only $ 500,000. However, his shares are traded for $ 25. Judging only this unit of measurement, many investors would prefer company B to A. The earnings per share are what you receive, while the price is what you pay. In other words, a company with sufficiently high profits and a relatively low market price is what most of the value investors look for.

Various large international companies, especially in the high-tech sector, have incredibly high price / earnings ratios. This last aspect does not necessarily translate into a label "to be avoided at all costs". These companies are still able to demonstrate satisfactory growth (sometimes very significant), but remain less attractive to investors.

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The PEG report

For many investors, the price / earnings / earnings / action ratio is not yet enough to come to a conclusion. After all, here we talk about your money. The relationship between price and earnings growth, which may suggest a higher future reward, is used to evaluate a company over a period of several years. If the relationship decreases over time, it is a good sign. It would mean that the company is either showing an increase in profits, or a decline in the market price. When the P / E increases, the investment becomes less interesting.

There are cases in which companies can increase in price without demonstrating any substantial increase in profits. However, in the long term are the profits that feed the market capitalization of a listed company.

Relationship between dividend and price

A title is not good just because it increases in price. Also dividend payments should not be underestimated. The dividend / price ratio is obtained by dividing the dividend by the share price. In other words, it can be seen as an interest in your money. Dividends, however, are a thorny issue, since it is not always convenient for companies to distribute profits among shareholders. Sometimes it is more convenient to reinvest the money in a further development of the company itself.

All of the above evaluation terms can be found or calculated from the earnings statements published by the companies on their websites. Now that you know how to evaluate a company like Warren Buffett would do, find the perfect company to invest in.

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This article does not represent an investment advice. Any reference to past movements or price levels is informative and based on external analyzes, we do not provide any guarantee that such movements or levels may reoccur in the future. In accordance with the requirements set by the European Securities and Markets Authority (ESMA), trading with binary and digital options is only available to customers categorized as professional clients.

GENERAL INFORMATION ON RISKS:

CFDs are complex instruments and carry the high risk of losing money quickly due to the leverage effect. 76% of retail investor accounts lose money when trading with CFD through this provider. You should make sure you understand how CFDs work and if you can afford to take the high risk of losing your money.


Source: IQOption blog 2018-10-30 10:07:36

PLEASE NOTE: The articles on this website are not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future.

In accordance with the requirements set by the European Securities and Markets Authority (ESMA), trading with binary and digital options is only available to customers categorized as professional clients.

Some of the links on this page may be an affiliate links. This means if you click on the link and purchase the item, I will receive an affiliate commission.

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HIGH RISK INVESTMENT WARNING:

This website is not intended for viewers from EEA countries. Binary options are not promoted or sold to retail EEA traders.

General risk warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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