How to Evaluate Companies Before Purchasing Their Stock

Daniel Penzing
Written by
Last update:

Sourcing Vital Information

Before you make any purchases, you’ll need to obtain information about the companies you’re interested in buying stock in. Some of the most important pieces of information include:

  • • Current valuation of the business (market cap, etc.)
  • • Business’ financial situation (profitability, debt, etc.)
  • • Business’ competitive advantage (products, services, etc.)
  • • Business’ management team and board (quality, experience)
  • • Business’ industry outlook (revenue, profit, etc.)

You’ve probably heard of most of these concepts before, but you may have not considered how valuable they are to your investment decisions and your business in general.

You need all of this information to properly evaluate a company, and you won’t have any of it if you don’t take the time to gather it. These business fundamentals will help you decide whether or not a company is a suitable investment for your portfolio.

Competitive and Business Analysis

To begin analyzing a company, I look at the potential competition that operates within a very close industry vicinity. I do this by looking at the stock performance of companies that operate in the same industry that the company I am analyzing operates in.

To say that a company has a competitive and business analysis is saying that we are going to examine our potential companies to purchase based on their past performance, their future competitive threats, and the trends they face in the market.

I do this by analyzing the trend lines of companies that operate in the same industry. I use the stock’s stock performance to perform my exam.

The more positive the trend on a company, the more likely the company could be a good company to purchase. The trend I am looking for is the upward trend.

If I see a downward trend in a company I am analyzing, I will remove that company from my list of coins to purchase at a later date.

To find the trend lines of companies that operate in the same industry, I use the stock’s overall market value, total shares, and the volume of the stock for that company. I do this for each company that is in the same industry.

I also use the industry index to determine the trend of the market in general. These trends are neutral, which is why I use the indexes. The indexes are good indicators for where the overall market is with its performance.

Goal: Crush Your Dreams