Picking the right stocks is crucial for successful investing. Simple steps to select the right stock are as follows:
1. Find out the company with Good Fundamentals. To invest in a fundamentally strong company, you can pick and filter the companies based on their financial health. In order to investigate further the fundamental health, you need to look into mainly these five financial ratios -
- An increase in Earnings Per Share (EPS)
- A lower-Price to Earnings Ratio (PE) as compared to competitors
- A lower-Price to Book Ratio (PBV) as compared to competitors
- Debt to Equity Ratio <0.5 or 0
- Increasing Current Ratio in the last 5 years
2. Make sure you understand the Products/Services offered by the company. It helps investors to understand a fall or rise in the stock price and make the investment decision more precisely.
3. Pick a company with a unique selling point (USP) that will support it in the long run, and thus, your investment.
4. Remember, cheap is not always good. You should find out the reason why a company's stock is undervalued. Is there any growth opportunity if you invest in it or not.
5. You can not rely on past returns of the company. For future growth, you need to consider different aspects of its management, competitors, industry, economy, etc.