How to Choose a Stock
Updated
by Justin Ling
Start by Using the filter function to Find companies
There are 500,000+ companies you could invest in. Our discover function allows you to filter through and narrow down the companies to find the right fit for you.
Industry: Indicates what part of the economy the company services
Country: Which Country the company's head office operates
Market Cap: How large the company is
Play around with the filters, and combine them.
If you need help with some ideas, you can use the Popular stocks function to see what people on EquitySim are investing in.
Reading the Data / Evaluation
Once you've used some filters, we've put together some basic information to help you evaluate your list:
Return: What you would have earned if you invested in this company 3 months ago. Remember, past performance isn't always a good indicator of future performance.
Volatility: How often the price moves up and down. The more volatile, the more uncertain what you may gain or lose. High volatility could mean large gains, but also large potential losses.
ex. Comparing Boeing and Netflix, both have relatively high volatilities. With Netflix being more volatile. If you were looking for a company that could give you high returns, but couldn't stomach too much of a swing, you might choose Boeing over Netflix.
Statistics:
Volume: The number of shares, traded a day. Larger volume means more buyers and sellers which make the current price more accurate.
P/E Ratio: Stands for Price to Earnings, this shows how much you are paying for the profits of the company (negative P/E signifies the company is not generating profit).
ex. The lower the P/E the more of a bargain you are getting on profit generation. Boeing's P/E (39.48) is half as much as Netflix (84.68); so it earns twice as much profit as Netflix relative to its price.
Dividend Yield: If a stock has a dividend, it has a guaranteed annual cash payout equal to the dividend yield.
Market Capitalization: Tells you how big the company is. Generally larger companies are less risky than smaller companies.
Price: The price for each unit of a company.
note: It is a common misnomer that the higher the price of a stock the "more expensive it is" or less likely it can "make money".
This is not true.
A price of a stock just tells you the price of each unit. It can limit the flexibility on the number of shares you can hold, but does not tell much about the valuation of the stock on its own.