Investing in stocks can be a daunting task. While building a portfolio or investing in the stock markets, selecting the right stock is very crucial. Selecting the right stock at the right time can turn out to be the most lucrative deal and one can make good profits from the wise decision. Similarly, it is very important to time the stock while selling it. Selling the stock at the appropriate time can be equally rewarding.
Investing in a wrong stock can be a painful experience. It can lead to losses or take years to break even. Stock markets are definitely not for the people who cannot cope up with ups and downs associated with it. With vast information available in the market, you can analyse a company and take a decision of buying or selling. In this article, we shall understand how to identify stocks to buy or sell.
Here are the main factors you should consider before buying and selling any stock
Factors to Consider When Buying or Selling Stocks
1- Select the Company or Industry with which you are Familiar:
When you start investing in stock market, select the industry you like the most. This will make you more interested and you will be able to take the decision in a much-informed way. When you are aware of the industry and company, you will know what hype or information should be ignored. Thus, it is always advisable to start identifying stocks or companies you know well.2
2- Consider Valuation and Price:
Before purchasing or selling any stock, it is important that you consider the price and valuation of the stock. If the company is trading at PE multiples of less than 20, it is considered as undervalued and hence a good buy. On the other hand, a company trading at PE multiples of more than 20 is considered as overvalued and hence a good sell.
3- Look at Margins:
Companies survive by selling its products or services in the markets. If the sales or margins of the company are increasing at a good pace, then there is a good potential of a rise in the price of stock in future. Always look at the margins of the company and reasons for the increase, if any. Compare the cost of goods sold and other expenses for the increase in sales.
In the recent times, the technical indicators have been gaining popularity. The technical indicators can be in the form of charts that predict the future moment of the stock based on the stock movement in recent times. The technical indicators take into account the volume traded, 50-day and 200-day moving averages, etc. The information provided by the technical indicators can be very valuable while considering buying or selling of any stock.
5- Upcoming Events:
Any upcoming event regarding a company can be a reason for buying or selling the stock. The event can lead to multiple triggers in the price moment of the stock. Knowing and analysing the event right will help in determining the trend of the stock going forward. Thus, buy and sell of the stock can be initiated based on such events.
6- Evaluate Financial Reports:
Understanding and going through the financial reports of the company can make buying and selling decisions easier. Study the yearly reports of the company and compare them. Evaluate the profitability of the company. Check whether the revenue and the bottom line are showing consistent growth. Also look for cash payouts to stock investors in the form of a dividend. By evaluating all the above points, you can decide on whether to buy or sell the stock.