How to Analyze Stock Before Investing

To analyze a stock means examining it critically before deciding whether to buy. It is crucial to analyze a stock as plunging into it without proper research could be disastrous.

Key Factors to Check Before Investing in a Stock

Often investors will look at the company’s history, financial statements, competitive analysis, technical charts, and numerous factors before investing.

Below are key factors to check before investing in a stock:


A privately held company means that the owner decides everything about the business, from profit sharing ratio to expansion. Publicly listed means that the company has several public shareholders who have bought some stocks. Publicly Listed companies are generally considered the right investment option.


As an investor, it is essential to know what kind of competition you are up against by checking the sub-sector of the company you are thinking of investing. Intense competition means that prices are low, demand is high, and there is a stiff price war among competitors. On the other hand, weak competition means that prices are high, demand is low, and there isn’t much price war which could affect the company’s profitability.

The industry type will give you an idea of how healthy the business is and the future investment potentials.

Market Capitalization

Market Capitalization of the company will indicate the financial worth of the company in today’s value—generally, investors like investing in companies with a higher market capitalization.


It will be a wise idea to invest in a stock that is traded actively on stock exchanges. It implies that many investors recognize the company, and you will never face liquidity problems while exiting from your investment.


A dividend is an amount paid to investors from the company’s earnings. Based on its performance and earning capacity, it can be fixed as a proportion of stock price or may vary with time.


Growth means appreciation in stock price based on the company’s performance and earning capacity. It can be due to business model change, new product launch, expanding sales/service network, etc.

Crucial Stock market terms to look out for in your research

We have outlined some basic terms to get you started:

  • UNDERLYING SECURITY: The security that is to be traded, usually a stock.
  • INVESTOR CLASSIFICATION: Classification of investors into retail and institutional classes.
  • MARKET AND LIMIT ORDERS: A market order, sometimes referred to as immediacy, is used when the trader requires the trade executed at the current market price. A limit order sometimes referred to as negativity, is where the investor sets the desired entry price.
  • ODD LOT: any lot of fewer than 100 shares. Odd lots are generally considered illiquid; in other words, they cannot quickly sell them because the required sales volume is not usually available.
  • DELIVERY: the process of transferring ownership and risk of security from the seller to the buyer and occurs when a payment has been made by wire or other means, thus giving access to money. Delivery typically takes place three business days after an investor places a purchase order for a stock.
  • PRICE LIMITATION: A condition of a bid or ask that is greater than the current best price.
  • DAY ORDER: An order to buy or sell once the stock has traded at your designated price, usually at the market. It ceases to exist after the trading day the investor executed unless the investor extends it.
  • DAY TRADING: The buying or selling of a security within the same trading day, including before and after market opening.
  • SHORT SELLING: A bet, typically on a falling market or in commodities such as oil and gold. It involves the expectation that the price will drop in the future and that one can repurchase it more cheaply than where it is held now.
  • STOCK SPLIT: When a company divides its shares into multiple shares, reducing the number of outstanding shares and theoretically increasing the value of each share. In a stock split, a company will often issue new shares as a strategy to prevent existing shareholders from proportionally owning too many voting rights or company assets.
  • MARKET MAKER: A person who accepts limit orders by potential buyers/sellers and then turns around and buys/sells those securities at the same price to earn a profit.

Why it is Important to Learn the Basic Terminology

Knowing the basic terminology allows you to follow along with the financial conversations by investors and newscasts. You can also learn about the stock market symbols.

Final Take

Having a grasp of the stock market terms will give you an insight into how things work in the stock market. With a better understanding of the financial market, you get to make the most out of your stocks.