How, to select a stock for Investment
or u can say How to check fundamentals of a stock?
First Go to https://www.bseindia.com In the search box type the name of the stock which u r interested in investing :-
Now select Financial, see its results Annual as well as quarterly
Firstly see Revenue, if its increasing every quarter as well as annual or its stable but not negative then its a good stock
Then see its Net Profit , if its increasing every quarter as well as annually then its a good stock
Then see its Debt as well as Reserve Capital :-
Suppose the Debt of a company was 100 crores in 2014, 90 crores in 2015, 70 crores in 2016, 50 crores in 2017
And its Reserve Capital in 2013 was 210 crores in 2014, 218 crores in 2015, 226 crores in 2016, 240 crores in 2017
Here u r seeing the Debts of this company is decreasing every financial year and the Reserve Capital is increasing every financial year. So, its a safe company to invest in. If a Company has zero debt but has good Reserve capital then its a Golden stock to invest
Now see Shareholding Pattern of that stock. Just see the percentage of stock promoters r holding & public is holding.
For example :- Suppose in 2014 Promoter Holding 66% Public or Institutions holding rest 34%, 2015 Prom Holding 70% and Pblic and inst=30%, In 2016, Promoters holding 72% and public and inst=28%, and in 2017 Promoters holding is 75% and public and inst=25%. So its a very less risky stock bcs Promoters holding has increased every year and not decreased so they hv faith in their company and If FIIs holding also increases every quarter or annually then additional good point for stock
Now see its P/E ratio and also check its Industry P/E ratio
Suppose its a Pharma stock trading at 200 rupees and its P?E ratio is just 9 and Its Industry P/E ratio is 27. What does it means ? It means that the stock has the potential to triple from here bcs its Industry P/E ratio is thrice its own P/E ratio
Next point is to check if Promoters have pledged its shares. Suppose company is posting very good results every year but most of its shares are pledged by promoters then simply avoid that stock
Now, next see its Book Value. Book Value is Total Assets of a company Divided by its total no of shares. Suppose its Book value 85 and the share is already trading at 450. For me its already a overvalued stock bcs its trading way above its book value even though its a good company risk element is high for investment. Now, Suppoe the BV of a stock 300 and its currently trading at 75 . Its a good pick or safe pick for investment bcs its BV is still 4 times its current price. But u hv to check other above mentioned factors also to invest in it. Only if its BV is high than its current price doesn’t mean that stock is good
Another way is to select turnaround story stocks. Suppose a company was posting losses every financial year, but suddenly this year it has posted profit. So the stock is ready for turnaround now
Suppose, the company had huge debts but every quarter its decreasing its debt, its also a turnaround candidate