A few tips to keep in mind before buying shares

Subscribe to GoodReturns
For Quick Alerts
ALLOW NOTIFICATIONS  
For Daily Alerts
    A few tips to keep in mind before buying shares
    Planning to buy shares and build a portfolio, here are a few tips that you must keep in mind before zeroing on a stock. Some of these are more fundamental in nature and the information and ratio is available through various portals or the company's own results announcements.
     

    Check the price to earnings multiple and EPS

    It's important to understand the EPS and its relation to the price to earnings multiple. Read more on EPS and P/E.

    Remember higher the price to earnings multiple, the more you are paying for the stock. So, if two stocks from the industry are having two different P/Es, then you can say that one is more expensive than the other and may have to look at other parameters.

    Check the 52-week high and low of the stock

    Check if the stock is near its 52-week high or low. If it's at the lower end of the 52-week low, it's possible that the stock could rise. On the other hand avoid buying the stock if it is closer to its 52 week high.

    Check the price to book value

    Normally, a price to book value of 1 and 2 times is reasonable, beyond that the stock is expensive.

    Check the promoter holdings

    If the promoter holding is high, then the promoter himself has faith in the company. A holding in excess of 50 per cent is always good.

    Check if the promoter shares have been pledged

    If the promoters shares are pledged it's a sign that the company's cash flows are not healthy. It's best to avoid such stocks.

    Check fancy of the industry

    Certain sectors do not attract high price to earnings multiples. For example, the metals sector is less attractive for investors, then the FMCG sector. Therefore, the FMCG sector attracts a higher price to earnings multiple. This is because people are willing to pay more as they are recession proof.

     

    Check if the stock is from a bellweather industry

    Bellweather industry stocks are those from the pharma, FMCG and IT industry and are generally accorded higher valuations, because of their recession proof nature.

    Of course, there are a whole lot of other things that one needs to check before buying a stock and it's almost impossible to highlight all. For example its's important to study cash flows , future expansion plans, regulatory risks, export and other risks etc.

    GoodReturns.in

    Read more about: stocks tips
    Company Search
    Enter the first few characters of the company's name or the NSE symbol or BSE code and click 'Go'

    Find IFSC

    We use cookies to ensure that we give you the best experience on our website. This includes cookies from third party social media websites and ad networks. Such third party cookies may track your use on Goodreturns sites for better rendering. Our partners use cookies to ensure we show you advertising that is relevant to you. If you continue without changing your settings, we'll assume that you are happy to receive all cookies on Goodreturns website. However, you can change your cookie settings at any time. Learn more