After learning about the strategy and considerations for picking individual stocks on eToro in our previous article, it’s time to dive into the crucial metrics that will guide your investment decisions.
💡 Key Takeaways
|→Consider diversifying your portfolio with a mix of dividend, blue-chip, and growth stocks.|
|→Explore different approaches: follow gurus, develop your understanding, or dig into individual companies.|
|→Analyze stock metrics and compare them to your criteria before investing.|
|→Key stock metrics to consider include Price-Earnings (P/E) Ratio, Earnings Per Share (EPS), Dividend Yield, Company History and Strength, and Debt-Equity Ratio.|
Table of content
- 📊 The Top 5 Metrics for Stock Picking Success
- 1.Price-Earnings (P/E) Ratio: The Valuation Yardstick 📏
- 2. Earnings Per Share (EPS): The Profitability Indicator 💰
- 3. Dividend Yield: The Income Gauge 💵
- 4. Company History and Strength: The Competitive Landscape 🏭
- 5. Debt-Equity Ratio: The Financial Health Thermometer 🌡️
- GENERAL RISK WARNING
- Author & Expert Trader - Financial Analyst :
📊 The Top 5 Metrics for Stock Picking Success
While numerous parameters exist for evaluating stocks, we’ve narrowed down the list to the five most important metrics.
To view these metrics on eToro, navigate to your desired stock and select the ‘Stats’ tab.
1.Price-Earnings (P/E) Ratio: The Valuation Yardstick 📏
The Price-Earnings (P/E) Ratio measures a stock’s market value in relation to the company’s earnings (See image 1 below). Calculated by dividing the stock’s price by the company’s earnings per share, the P/E ratio is often used to compare organizations within the same industry or sector. It can provide insights into the relative value of a stock.
Earnings Per Share (EPS) is a metric that describes a company’s profitability on a shareholder level (See image 2 above). It represents the ratio of the company’s adjusted income (net income minus preferred dividends) to the outstanding shares. By excluding preferred dividends, EPS assesses the income available to common shareholders, allowing for the comparison of companies of various sizes.
3. Dividend Yield: The Income Gauge 💵
Located at number 3 in the image above, Dividend Yield is an important metric for income-focused investors. Stable companies with a history of increasing dividend payouts are often considered attractive investments. However, beware of extremely high dividend yields, as they may indicate a company’s preference for sharing profits over investing in growth. Dividend yields can vary significantly across industries, so it’s essential to compare companies in the same sector.
4. Company History and Strength: The Competitive Landscape 🏭
Analyzing a company’s history and strength involves assessing its industry, competitive position, and performance over time. Begin by examining the stability and growth potential of the industry in which the company operates. Then, determine whether the company is doing well and if it holds a competitive advantage. Comparing companies of similar size, using market capitalization as a benchmark, can provide additional insights.
5. Debt-Equity Ratio: The Financial Health Thermometer 🌡️
Debt is a common feature for most companies, but it’s essential to ensure they have sufficient assets and equity to back it up. The Debt-Equity Ratio measures the ratio of a company’s total liabilities to its shareholder equity. In some cases, a Debt-to-Assets Ratio is calculated, which is similar to the Debt-Equity Ratio. It’s important to compare these metrics within the context of the company’s industry, as acceptable levels can vary significantly.
In the next part of this series, we will talk about how to analyse these metrics in-depth and apply them with active and passive investing. Now that you know what metrics to look at, feel free to try your hand at investing in them on the eToro Demo Practice Account.
This Article is Part of A Total guidance list on How to pick individual stocks, make sure you go by the article one by one to get a bigger understanding of the total picture. 😉
- How to Pick an individual stock Part 1 - The Strategy
- How to Pick an individual stock Part 2 - 5 metrics to look at when stock picking
- How to Pick an individual stock Part 3 - P/E Ratio (Price-Earnings ratio)
- How to Pick an individual stock Part 4 - Earnings Per Share
- How to Pick an individual stock Part 5 - Dividend Yield
- How to Pick an individual stock Part 6- Company History And Strength
- How to Pick an individual stock Part 7- Debt-Equity Ratio
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Author & Expert Trader - Financial Analyst :
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