Just In – NASDAQ Tells Investors the Best Ways to Research Stocks before Buying
NASDAQ, which stands for the “National Association of Securities Dealers Automated Quotations” is the #1 screen-based electronic equities market in the US, and the second-most important one in the world in terms of market capitalization. NASDAQ grosses more trading volumes than any other stock exchange anywhere. So when the NASDAQ issues a guideline or comes out with tips, you must know about it.
Recently, NASDAQ has published a report, where they have recommended how investors should carry out a detailed research before buying a stock. NASDAQ recommends 12 steps for thoroughly analyzing a stock, and has named it the NASDAQ Dozen.
What Is The NASDAQ Dozen?
NASDAQ Dozen is the 12 steps to research any stock. These steps are,
1. Revenue
2. EPS or the Earnings per Share
3. ROE or the Return on Equity
4. Recommendations
5. Surprises in earnings
6. Forecasted growth
7. Growth in earnings
8. The PEG Ratio
9. Earnings of the industry
10. Days to Cover
11. Trading done by company insiders, or Insider Trading
12. Measurement of the stocks rise or fall, or the Weighted Alpha
Here is a detailed explanation of the NASDAQ Dozen for analyzing a stock.
Revenue – This one’s quite simple, and it refers to the revenue earned by the company.
EPS – EPS or the Earning per Share is a mathematical calculation that is arrived at by dividing the company’s earning by the total number of stocks. The EPS of a good stock is always high, but also check whether the EPS is rising or not.
ROE – The total profit or loss after taxation and interest, and divided by the stockholder’s equity. NASDAQ recommends those stocks where the ROE has risen for at least the last two years.
Recommendations – What are the experts saying about this stock? Since they are doing research all the time, it makes sense to find this out.
Surprises in earnings – Results are announced in each quarter, and analysts will always predict the earnings or the EPS for the next quarter. Now if you find that the actual EPS is more than what was predicted, then you can conclude that this is a good stock to buy.
Forecasted growth – While it is important to find out the past earnings, you should also know what the experts are saying about the future growth prospects.
Growth in earnings – This is a projection of the expected earnings growth over the next 5 years according to the stock analysts.
PEG ratio – The ratio is arrived at by calculating the stock’s price, the EPS and expected growth of the company. NASDAQ is asking investors to pick those stocks where the ratio is lower than 1.
Industry earnings – The earning of the company needs to be compared with the other businesses in the industry to get the overall picture. If you find that the company is doing better than the average industry returns, then you should go ahead and pick it up.
Days to cover – How many days will it take for the short sellers to get their positions covered? This should of course be based on the stock’s trading volumes.
Insider Trading – An analysis of whether the company insiders are buying the stock or not. If the managers are confident, they will be buying the stock themselves.
Weighted Alpha – This is an evaluation of the stock’s rise or fall over time.
