Millions of Americans make a substantial amount of money on stocks every year. As there are several parameters based on which you can compare stocks, choosing a winning stock can be confusing. Knowing how to compare stocks can be a great advantage if you plan on trading and making money on the stock market. Read on for our guide to efficiently comparing two stocks.
You can quickly compare two stocks using just five or six specific parameters. These parameters could differ between categories of stocks but commonly include revenue growth, a high annual increase in dividend and low ratio for dividend payout, and performance data over the last year. At times, just a few parameters may not suffice. You can add parameters such as market trends and investor favors to the mix to help you choose the best stock.
Stocks in the $50 to $100 price range tend to show better price stability than those in the under-$10 bracket. When comparing two stocks, considering the stock price can help you understand how much risk is involved.
Compare Similar Stocks
Stock trading experts suggest that comparing stocks gets much easier when they are from the same industry. For example, analyzing stocks from different categories, one from an automobile company and another from a financial institution, delivers few results. You could consider stocks that fall under related groups as they tend to show similar performance. While comparing stocks in groups, you’ll most likely make money buying one that investors currently favor.
Experts compile consensus estimates using information from all analysts covering a stock. It represents an average forecast of a company’s sales and revenues. It is important to remember that these estimates, based on opinions, depend on several factors and are subject to change. Investors familiar with trading advise staying away from stocks that have not lived up to their recent consensus estimates.
Stock charts are a great tool that helps visualize the health of the stock. Most broker’s websites allow you to compare stock charts and better understand a stock’s growth direction over time.
Armed with this knowledge, you can now make an educated decision when it comes to choosing between two stocks.