It’s no secret that stocks are one of the most lucrative investment opportunities. Most people are aware of this but remain skeptical of taking the first step.
Some do not have the time, while others are held back by the lack of knowledge. If you belong to the latter, you’ve come to the right place.
This blog will discuss the stock buying checklist every investor must be aware of. And it isn’t limited to first-timers; those who have been dealing with stocks for years will also find it helpful.
Stock Buying Checklist – Stock Purchase Agreement Checklist
So, the next time you’re thinking of investing in stocks, let this trading checklist show you the way.
1. Do You Understand What You’re Buying?
Before purchasing a company’s assets, you want surety that the investment will yield a high return. Though it’s impossible to predict industry trends with 100% certainty, you can still increase the chances of earning a significant ROI with the help of an investing checklist.
And that can be done by choosing a business you thoroughly understand. For instance, if you’re the opposite of a tech-savvy person, selecting a high-tech company is the last thing you need.
So, stick with something you have a firm grasp on, like a fast-moving consumer goods (FMCG) company. It’s not necessarily challenging to understand, and you’ll know what to do if the firm’s stock prices decline.
2. What Does the Company’s History Suggest?
It’s not easy to tell whether a company’s stock prices will go up or down. But its history will paint a relatively accurate picture.
For that reason, analyze the firm’s past (growth-wise) to discern its performance in the long term.
Moreover, an organization’s previous work reflects how its stocks reacted to the changes in the market. And that’s essential to figure out, considering the stock market is volatile.
If you need pointers, as in what to look for in a company’s history, keep the following stock analysis checklist points in mind:
- What are its all-time high and all-time low stock prices?
- How did its stocks perform during a national or international disaster?
- Is there a difference between its benchmark and actual stock price fluctuations?
3. How Does the Company Make Money?
One of the most crucial aspects of a stock due diligence (DD) checklist for beginners is how the company they intend to buy shares of makes money. And if you contemplate, it sounds pretty simple.
Take banks, for instance. The majority of people think banks make money by charging clients transaction fees. But that’s not true. If it were, the financial services industry wouldn’t be worth trillions. Generally, banks earn by lending money on a certain interest. However, this is the traditional method, and some banks generate revenue through other means.
Therefore, get a firm grip on the company’s primary and secondary money-making techniques.
4. What Is the Share Price’s Value?
Evaluating a company’s share price value is an integral part of investment decisions, and there are many methods to do so. The most common one is called the price-to-earnings (P/E) ratio.
Let’s understand this with the help of an example.
You’re considering investing in a company, Umbrella Corporation; its fiscal year ended on January 31st, 2023, and its earnings per share (EPS) were $5. On the other hand, Umbrella Corporation’s share price was $140.
So, to find out the company’s P/E ratio, divide its stock price (140) by the EPS (5), which would give 28.
Remember, the lower the P/E ratio value, the better the investment opportunity; keep this in your checklist before buying a stock.
5. Who Is the Company’s Target Audience?
Customers are the livelihood of every business, irrespective of the industry. And their importance translates to the technical stock analysis checklist, too.
Because of this, learn about the client base of the company you intend to buy the stocks of. It’s important to mention that just because an organization has a large target audience doesn’t necessarily mean it’ll cater to everyone.
In many cases, just a handful of those will be the prospects, and you should focus on getting to know them. Once you do, it’ll be easier to understand the consumer journey, which will help you check every box in the stock buying checklist.
6. Who Runs the Company?
‘Runs’ is an umbrella term encompassing many designations. However, here, we mean the members that constitute the company’s management.
In the stock fundamental analysis checklist, the rule of thumb is to invest in companies that have leaders under whose guidance the firm has grown. And looking at the organization’s CEO’s performance can help you make a decision.
More specifically, you should analyze the leadership qualities and ask the following questions:
• Has the company’s management team changed over the past five years?
• Do they have the necessary skills to navigate the organization if things get hard?
• Are the employees satisfied with how the management runs things?
7. Can the Company Retain Customers?
To call a company successful, it should be able to retain employees and customers. Reaching that position in the industry can take years, which is precisely why it’s an integral component of the stock purchase agreement checklist.
After all, consumers make or break a business. With that in mind, the better the customer retention rate, the better investment opportunity the company will be.
To better understand this, take a look at the example of the short-lived American streaming platform Quibi. It was launched in April 2020 to rival Netflix but ultimately dissolved because Netflix had a better customer retention rate.
So, those who invested in Quibi’s stocks (worth over $1.75 billion) were up in arms, to say the least.
8. What Would You Do If Things Go Sideways?
The stock market is unpredictable, and earning a profit isn’t guaranteed. Therefore, you should always have a backup plan in case things go south, which happens quite frequently.
A crucial part of Plan B is to know when to stop. If a company’s stocks have been going downward for months, you should sell them instead of waiting for things to improve. In addition, as the famous saying goes, ‘Don’t put all your eggs in one basket’; make sure you have enough capital to bounce back with even if you suffer a loss in stocks.
9. Is There Tough Competition in the Market?
Sure, a company may be performing exceptionally well at a given moment. But it’s not necessary that things will continue running smoothly in the future. That’s why it’s important to remain vigilant, keeping an eye on those companies that can give tough competition to the organization you intend to invest in. Apart from the rivals, many risks threaten an organization’s existence; they can be found in its Security Exchange Commission (SEC) filings.
10. Does the Current Market Situation Allow Investing?
Things have been a lot different post-Covid-19. The businesses that were doing spectacularly failed miserably, and brands whom one had never heard before climbed the ladders of popularity.
Since then, investors have added an extra point to their stock day trading checklist: assessing the current market situation. If the condition is not favorable and there are risks of political unrest or a global pandemic, it’s better to wait for things to settle down.
There’s a lot involved in stocks, and we’re not even talking about money; your time and energy are also at stake. For that reason, consider this stock-buying checklist before moving forward.
And if you require professional help, American Made llc is just a click away. Being experienced stock trading consultants, we’ll gather all the relevant information and present it, making it easy for you to select a company to buy stocks.
Frequently Asked Questions (FAQs)
Yes, chat patterns can help you make sense of the stock market. They can be used for identifying multiple factors, such as price movement, the latest trends, and trading opportunities.
Many financial institutions in the US can help you open a brokerage account. Once you’ve done it, you can purchase penny stocks through the account.
You can research stocks yourself or hire a professional to do it on your behalf. The first option will be cost-effective but it requires a lot of hard work. The second will be expensive, but everything will be done for you.