Stock research can help you evaluate a company and decide whether it’s worth adding to your portfolio.
Researching a stock is a lot like shopping for a car. You can base a decision solely on technical specs, but it’s also important to consider how the ride feels on the road, the manufacturer’s reputation and whether the color of the interior will camouflage dog hair.
Investors have a name for that type of stock research: fundamental analysis.
What that means: Looking at a range of factors — such as the company’s financials, leadership team and competition — to evaluate a stock and decide whether it deserves a parking spot in your portfolio.
» Looking for a lesson in how to buy stocks instead? We have a full guide to that here.
Stock research: 4 key steps to evaluate any stock
One note before we dive in: Stocks are considered long-term investments because they carry quite a bit of risk; you need time to weather any ups and downs and benefit from long-term gains. That means investing in stocks is best for money you won’t need in at least the next five years. (Elsewhere we outline better options for short-term savings.)
1. Gather your stock research materials
Start by reviewing the company’s financials. This is called quantitative research, and it begins with pulling together a few documents that companies are required to file with the U.S. Securities and Exchange Commission:
Form 10-K: An annual report that includes key financial statements that have been independently audited. Here you can review a company’s balance sheet, its sources of income and how it handles its cash, and its revenues and expenses.
Form 10-Q: A quarterly update on operations and financial results.
Short on time? You’ll find highlights from the above filings and important financial ratios on your brokerage firm’s website or on major financial news websites. (If you don’t have a brokerage account, here’s how to open one.) This information will help you compare a company’s performance against other candidates for your investment dollars.
» View our picks: The best online brokers