How to Evaluate and Choose a Company for Investment? |
Posted: January 15, 2021 |
There is no such tool or analysis method that could point to the ideal company for investment, with guaranteed profits and no risks. However, this is not a reason to refuse analysis at all. We will tell you how to choose a company for investment in Ukraine.
Step 1. Find out everythingThe first thing to find out about the company, whose shares we consider as an object for investment, are financial indicators. It is advisable to track their dynamics over several years:
All this information is usually provided on the websites of companies. For example, here is the page for Motor Sich - http://www.motorsich.com/eng/investors/.
Yes, such a thorough analysis will take time, and financial statements are boring to read. But this is the best thing you can do for yourself as an investor.
After collecting information on 10-12 companies, you can already choose the most interesting for investment. However, the conclusions on them are not yet a signal to buy shares or to abandon this idea forever.
Step 2. AnalyzeHow to evaluate a company for investment without analyzing the collected indicators? No way.
You can enter all the data into tables, build visual graphs and diagrams. This will make it easier for you to see trends and compare performance across different companies.
Positive signals:
It is also worth assessing the prospects for the industry as a whole. After all, we are talking about long-term investments, ideally for decades. It is clear that it is extremely difficult to do this without special knowledge and experience. Therefore, read the analytics, listen to the opinion of experts.
A balanced portfolio assumes that it contains stocks of companies from different sectors: mechanical engineering, mining, technology, etc. You can focus on stock indices in order to understand the whole picture.
Step 3. CoefficientsWhen analyzing stock market offers, it is worth paying attention to the ratio of the enterprise value to its profit (P / E). The lower it is, the better. This means that the company will quickly enough recoup the business from the profit, and its shares are not overvalued and are traded at the market price.
For tech companies and startups, the P / E ratio can reach 200-300 points. Does this mean that such companies should be avoided? Not at all. For example, Amazon's P / E is 227 (a profit of $ 3.9 billion with a capitalization of $ 874 billion) and hardly anyone will blame it for poor profitability. Young companies that are just starting an IPO can show rapid growth, and then, with minimal investment, the investor will receive a significant return.
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