Five ways to research a stock before you buy

①Find out what the company does and how it makes money
A good place to start researching a company is to find out how it makes money. Sometimes it’s easier to start with companies you’re already familiar with, or to focus on business models that are simple to understand. This is because if you don’t understand how a company makes money, it might be harder for you to keep track of how your investment is performing.

If you want to dig deeper, most companies publish information for investors on their website. You can often find financial results, announcements, annual reports, and notes from past Annual General Meetings.
As well as researching a company, look at the landscape surrounding it. The type of questions you can think about here are:

1.Does the company have a competitive advantage within its industry?
2.Does it operate in an industry where it’s relatively easy for competitors to enter the same market?
3.Are there any particular events or economic conditions that could have an impact on the company?
4.Does it provide a product or service that could be easily substituted for another?
5.Do the company’s customers or suppliers have a lot of power over its prices?

②Read the research from the experts
If you were a professional money manager, you’d probably use independent equity research to challenge your thought processes and investment decisions. You’d look at research pieces from in-house analysts, large investment banks, and independent research firms. These research pieces are written by analysts who regularly speak with industry experts, competitors, and company management. They analyse everything about a stock and the sector it belongs to.
If you’re not a professional money manager, it’s not practical to do the same in-depth analysis. However, you can read the same research to educate yourself around your current and future investments.
At CommSec, we offer our customers access to research from Goldman Sachs and Morningstar, covering hundreds of stocks.

③Charting
Look at the company’s price chart and try to gauge whether the stock might be trending up or down. If the price has fallen over time, take a closer look at the company to find out why. Charts can also tell you how much demand there is for a stock (known as the trading volume). If there’s a sudden increase or decrease in trading volume, try to find out what prompted it.

④Look at the company’s financials
Including balance sheet, revenue, profit expectation and net profit.These can help you analyze investments and compare different companies.

⑤Ask the community
If you want to gather your opinion on a stock or discuss trading ideas, you can discuss it in the community or ask a more professional person

The bottom line
When you’re researching a stock, every bit of information is just one piece of the puzzle. Investors should look at a range of sources including (but not limited to) company reports, expert analysis, market news and announcements.