How to Select best Stock for Investing

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Welcome to our wonderful website. So friends, today we are going to know in this article, How to Select Best Stock in Stock Market… If you want to choose the best stock in the stock market, then read this article till the end.

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Let’s start, today’s great article…

How to Select Best Stock The First point comes in this,

1. Identify the correct Sector :-

Thousands of companies are listed in the stock market. It becomes very difficult for you to choose the best stocks among them.

With the changing times, ignore the companies making old products. For example, companies making typewriters, DVD players, etc. Always invest in such company which has potential to grow business in future. For example, electric bikes or cars, etc. So you need to understand the business of the company.

Understand the business of the Company

2. Understand the business of the Company :-

Many investors invest in the shares of any company on the basis of Stock tips without thinking. They don’t even know what business the company does. Buying shares of a company means that you are investing your money in that business. That’s why you should know what the company is doing with your money. If you do not understand the business of the company properly then you will lose your money.

So always keep these things in mind –

  • What business is the company doing?
  • What are the company’s products available in the market or what kind of services the company is providing?
  • Who are the company’s target consumers?

View company’s Financial Data

3. View company’s Financial Data :-

Whatever stock is looking good to you on the basis of future, definitely look at the Financial Data of the last 3 to 5 years of that stock. In this, you should see the Balance sheet, Income statement, Cash Flow and Financial ratio.

Balance Sheet :
In this, you see the sales data of the company for the last 3-5 years. If there is an increase in sales, it means that people are interested in the company’s products.
Look at the company’s net profit. Check out the details of the last few years in Net Profit. If profits are increasing year after year, these are great for the company’s stock.

4. EPS – Earning Per Share :-

EPS means how much share each stock of the company will get out of the net profit of the company. EPS is directly related to the Profit of the company. If the EPS is good then it means that the company is making good profits.

Let us understand EPS with the help of an example –

Let’s say there is a company XYZ. This company has 100 shares, out of which you have 1 share. If that company earns $ 1000 in a year, then the EPS (Earning Per Share) of that company will be = $1000÷100 share = $10 per share.
Never invest in stocks with negative EPS

5. P/E Ratio – Price Earning Ratio :-

P/E i.e. Price to Earning Ratio. Meaning how much money you have to invest to earn 1 rupee. The lower it is, the better it is considered.
According to Financial, PE Ratio is most important.

Suppose, a company has 20. So it means, you have to invest 20 rupees to earn 1 rupee.

6. ROE and ROCE :-

Both these ratios are considered to be the most important while selecting the shares of any company. This ratio tells you the return on equity or capital employed.

ROE (Return on Equity)

ROE (Return on Equity):-
This ratio tells you how much money or return the company is making on its equity. If you understand in easy language, then how much money is being made on the money invested by the company.
Suppose ABC is a company. The company has a share capital of $100 and reserves of $100. The total equity of the company was $ 200. Let the net profit of the company be $ 200 this year. So here the ROE of company ABC will be –

[ROE = Net Profit / Total Equity]
$200 / $200 = 100%

ROCE – Return on Capital Employed

ROCE – Return on Capital Employed :-
This ratio tells how much return the company has earned on its total invested money or investment. Suppose ABC has share capital of $100 and reserves of $100. Apart from this, the company has also taken a loan of $100. Here the capital employed by the company was $ 300. Suppose this year the EBIT (Earnings before interest and tax) of the company was $ 250. So here ABC will be the ROCE of the company –

[ROCE = EBIT / Capital Employed]
$250 / $300 = 83.33%

You should never invest in companies with less than 10% ROE and ROCE.

How much is the Debts on the Company

7. How much is the Debts on the Company :-

The most important answer to how to choose shares in the stock market is debts. While choosing shares in the stock market, how much debt is there on the company, must be seen. If a company has more debt, then it has to pay a lot of interest on the loan. If the company continues to pay interest, then its profits are negatively affected.

Therefore, the company in which you are investing should have at least debt on that company. You can give more attention to a Debt Free company.

As an investor you can see the Debt-Equity Ratio of the company. If the Debt-Equity Ratio is less than 1 then it is considered good. If this ratio is zero then it is considered an ideal ratio.

8. Dividend :-

The companies which have good financial condition and earn profit, pay dividend to their shareholders. Dividend can also be treated as regular income along with increase in share price.

If you want to know, What is Dividend, and why does the company pay dividend?
So you click on this link
https://shareinfobazaar.com/what-is-mean-by-dividend/

Management of the Company

9. View the information about the Management of the Company :-

A good management of any company can make the future of the company more bright whereas bad management can bring down a good company also. Therefore, while selecting the share, you must get the right information about the management of the company.

10. Check Shareholding Pattern :-

The shareholding pattern of a company shows who is holding the shares of the company. In this you have to see how much of the share is with the promoters. The more shares the promoters have, the better it is considered.

If the promoters have more shareholding then it is assumed that they have confidence in the business of the company. Promoters must have at least 50% shares. If it is more then it is considered better.

If you Follow all these strategies, then no one can stop you from becoming a Millionaire in the stock market.

So, Friends, today we have seen in this article, How to Select Best Stock in Stock? and stay tuned with our website to get similar information in future also.

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