Good Fundamental Analysis Stock Picking Ratios
Fundamental analysis of the company and its stock is very important for traders and investors who have long-term profit from that stock. With the increased popularity of online trading, stock traders now have access to a whole range of fundamental analysis tools and ratios. Although traders follow different trading/investing strategies, they use two or more popular fundamental and technical analysis indicators and indices to pick tradable stocks.
Here are some important and popular fundamental analysis ratios for good stock picking.
1. Book Value per Share: Book value per share is the ratio, which is calculated by subtracting a company’s total liabilities from its total asset value and then dividing it by the total number of equity shares. Book value shows the worthiness of a company stock. The stock becomes good for trading when they drop below their book value.
2. Reserves and Ploughback: Reserve of a company is the accumulating profit of the company; and ploughback is the profit a company has after every expenses (including paying off dividends) to add to its reserve. Most growth companies are characterized by their high reserve and high ploughback. Most big and established companies spend most of their profit in paying off dividends.
3. Earnings per Share (EPS): Earnings per share ratio is derived by dividing the total profit after tax by the total number of company shares issued. This ratio is easy to find; and is extensively used by traders/investors who follow growth and value investment strategies.
4. Price to Earning (P/E) ratio: One another extensively used ratio of stock picking. Price to earning ratio gives the relationship between the current market price of a stock and its Earning per Share (EPS) ratio. Good stocks are picked by comparing P/E ratio of a stock with others in same industry or with market average.
5. Dividend Yield: Many long-term traders want to invest in stocks which yield them good dividends over time. Although, most growing companies pay small dividends in their growth phase, they tend to offer good dividends later.
6. Price/Earning to Growth (PEG) ratio: Many growth traders look for PEG ratio of stocks. Price/Earning to Growth is the comparison of a companies P/E ratio with its expected growth. This ratio gives the key information that whether the stock is over price, under priced or fully priced.
About the Author
NobleTrading, an online discount stock broker offer flexible commission plans, personalized account representatives and sophisticated trading platforms. Their Stock Market Trading Blogs are an excellent resource for online traders.
Investment tips: How to find/value cheap stocks, Insurance/Financial stocks (Ex: PMI)
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