If you have figured out what you need to know for stock trading, this time you need to decide which company to invest in? Follow the steps below to analyze your business. You can also study industry and companies.
First, choose the stock you want to invest in.
When investing in U.S. stocks for the first time, it is good to study individual stocks, focusing on major stocks by sector or top stocks in market capitalization. Each has its advantages.
Analyzing stocks focusing on large stocks by sector can increase the overall understanding of the sector. You can study various items evenly, and you can also develop an eye for understanding the business cycle and the flow of the stock market.
Analyzing stocks belonging to the top group by market capitalization is good for identifying current market trends.
Market capitalization is an indicator that reflects the growth potential of a stock and the expectations of the market. The size of the market cap means that many investors have chosen it as an investment target.
Second, check the basic information of the item
If you have selected an item, you should check the basic information first, right? I will explain Apple (AAPL), the world's No. 1 market capitalization, as an example.
✔️ Company overview
Search for the company name (Apple) or Tigger (AAPL) to study. Apple's company profile provides this information.
• Designs, manufactures and sells a variety of related services worldwide for smartphones, personal computers, tablets, wearables and accessories.
• Focus on wearables and accessories, including a flagship line of iPhone, Mac, iPad, AirPods, Apple TV, Apple Watch, and other Apple-branded and third-party accessories.
• Provides cloud services and operates various platforms including the App Store.
✔️ Sport information
Before investing, you must determine ① whether the stock price is going upwards ② price per share ③ whether there is a dividend ④ whether it is overvalued. Let's apply this standard to Apple.
① Apple's stock price shows a graph with a steady upward trend.
② Based on the closing price on June 18, 2021 (local time), the price per share is $130.6.
③ And Apple is a dividend stock that pays dividends. The dividend yield is 0.67%.
④ Compared to the 52-week high of $145.09, the stock price is currently down by 11.1%. It's a stock that's not burdensome compared to the highs.
Third, check simple financial information
Now it's time to check your financial information. This is the stage to see if the company is making money well and has a stable cash flow.
✔️ Are you making good money?
Check whether gross sales, operating profit, and net profit are steadily increasing.
Apple's total sales and net profit are increasing. Net profit margin fluctuates but shows a stable flow.
✔️ Is your cash flow stable?
Even if it is a company that makes money well, you need to make sure 'it manages that money stably'. The metric used here is free cash flow (FCF).
Free cash is the amount of cash earned by a company after deducting operating expenses, investment expenses, and taxes. Based on free cash flow, companies pay dividends. Only when cash flow is good can we implement a continuous dividend policy?
Fourth, check corporate competitiveness
Now we need to find out if the company has enough competitiveness. In technical terms, it is called an economic moat. It is to see whether a company has a solid edge in the market and whether it is difficult for competitors to appear due to high barriers to entry. It is used as an indicator to see if the company I will invest in can survive in the long term.
There are many criteria for determining economic moats, such as intangible assets, customer switching costs, cost advantages, and network effects. I will only look at 4 of these.
① Intangible assets
When you think of coffee, you think of Starbucks, of shoes, of Nike, of cereal, of Kellogg's. Intangible assets refer to the power of a brand that represents something like this. Although there is no form such as brand, sales network, patent, license, etc., it can be said that it is the unique asset value of a company.
② Customer conversion cost
It refers to the cost a customer spends on purchasing another company's goods or services. Have you ever heard of the lock effect? It refers to a phenomenon in which other companies cannot move because of already invested costs, opportunity costs, or complexity or hassle, even if superior products and services come out.
Apple is a representative company that makes good use of the lock effect. Android products with better performance or service are released every year, but the fact that consumers' loyalty to Apple's iPhone is overwhelmingly higher than that of other brands is a good example of the lock-in effect.
③ Cost advantage
It means whether we can produce products of the same quality at a lower cost than our competitors. If it is the same product, you need to make sure that you can maximize the profit of the company by making the product at a lower cost.
④ network effect
It means that the more people use it, the more people it attracts. Most SNS services are examples of making good use of network effects. The popularity of SNS services such as Facebook and Instagram is due to the network effect.
Fifth, identifying corporate issues
The last step is to identify the issues of the company to invest in. If you are not investing in bundled products such as ETFs or funds, you should be constantly interested in the companies you invest in. In particular, it is very important to understand corporate trends through the latest news.
There is good news in the recent Apple-related news. Due to strong sales of the iPhone 12 series, it ranked first in the global smartphone market in the fourth quarter of last year. This kind of news will have a good effect on the stock price flow, right?
Investment decisions are always yours. This content is just an example of analyzing a company, study it in the order I told you, and always invest carefully!