Last Updated on Dec 23, 2022 by

Investing in stocks can be rewarding when you research the issuing companies thoroughly. Gone are the days when information was inaccessible. With the advent of the internet, you have all the information you need about a company, like its revenue stream, products, financials, and other data, at your fingertips. Using this, you can analyse the desired stock in detail to assess whether it is a viable investment or not.

In this article, we will read about the types of stock analysis and understand how to analyse stocks using crucial pointers.

Types of stock analysis

There are two types of stock analysis, as discussed below:

1. Fundamental analysis

This type of stock analysis evaluates the underlying company’s fundamentals – business segments, financials, management, past performance, peers, and so on. The fundamental analysis places importance on the stock’s intrinsic value and sectoral and broader economic conditions.

Under the financials, a fundamental analyst looks at financial ratios and financial statements such as the profit and loss statement, the balance sheet, and the cash flow statement that suggest how the company has performed so far and hints at how it can fare in the future.

Key takeaways:

  • Revenue, earnings, and future growth are important data points you can look at
  • Net profit margin, return on equity, and P/E ratio are among the key financial ratios

You can find all such details on Tickertape’s Stock Pages, which host comprehensive details about a company’s financials, peers, key metrics, and more. Let’s take the example of Reliance Industries Limited (RIL).

Head on to the ‘Overview’ tab of Tickertape’s Stock Page to take a look at the key metrics of your favourite stock.

Fundamental analysis of stocks is based on the belief that the stock price reflects the growth of the company. In other words, as the company grows, the value of the share does too. As a result, if you invest in fundamentally strong companies and hold them for long, you would earn manifold returns depending on the stock performance.

2. Technical analysis

Conversely, technical analysis of stocks focuses on the trend in the stock price and doesn’t really study the company’s fundamentals. This type of analysis assumes that the stock price heavily depends on the supply and demand for the share and, thus, reflects the value of the stock. The technical analysis of stocks also believes that historical price movements indicate the stock’s future performance. Technical analysts typically look to profit from the short-term movement in stock prices.

Key takeaways:

  • Technical analysis is used by traders and short-term investors
  • Technical analysts use charts of stock prices to make trading decisions
  • Bollinger Bands, Ichimoku Cloud, and Relative Strength Indices (RSI) are a few key technical indicators

In addition to fundamentals, Tickertape’s Stock Pages also have specific technical indicators such as RSI and volatility. The following image compares a few technical indicators of Reliance with its peers.

 How to analyse a stock before investing?  

Nothing rewarding comes easy; the same goes for stocks. But we have tried our best to answer how to analyse a stock in a simple manner.

Research the industry in which the company operates

A group of companies involved in similar businesses make up an industry, such as manufacturing, services, chemicals, and so on. Analysing the industry to which a company belongs is paramount because it helps:

  1. Evaluate the company’s performance compared to the industry as a whole
  2. Identify macroeconomic factors that can impact your desired stock
  3. Evaluate the prospects of the industry and your desired stock

Some good questions to find answers to are as follows:

  1. What are the strengths of the industry?
  2. What are the weaknesses of the industry? 
  3. How competitive is the industry?
  4. How easy is it for a new company to enter the industry?
  5. Are businesses in the industry cyclical in nature?

Once you get answers to these questions, you can decide whether you are open to investing in the industry. If yes, you can go on to analyse your desired stock.

Understand the underlying company and what it does

This is qualitative information. The best way to start is from the company’s website and annual reports. Study the company profile. Look at the company’s business model. What are its strengths and weaknesses? How many products and services does it offer, or how many revenue streams does it have?

Study the financial statements of the company

Next, analyse the company’s financials – balance sheet, profit and loss account, and cash flow statements of at least the last 5 yrs.

In the profit and loss statement, which details its profitability, look at the trends of the operating cost, revenue, net profit, operating expenses, working capital and other data points. Following is the income statement or the profit and loss statement of RIL.

In the above statement, you can see that RIL’s total revenue has been on an increasing trend except for FY 2022 when it saw a dip. But the following year, RIL recovered the dip and registered a revenue greater than FY 2020.

The balance sheet gives a picture of the company’s overall financial position. Here, analyse the company’s current and long-term assets, current and long-term liabilities, cash in hand, retained earnings, capital expenditures, contingencies, provisions, etc.

Finally, you can study the company’s cash position through the cash flow statement. Find out if it generates more cash than spending or vice versa. If the cash flowing in is more than what is flowing out, it is a good sign. The opposite may not be.

But remember that all these factors should be examined simultaneously and not in isolation. Only then can you draw meaningful conclusions.

For instance, if, in a particular year, the company has had negative cash flow, you need not conclude that it is a bad thing. Instead, try finding out the reasons. One possibility is that the company had made a capital expenditure that year. If this expense aids the company’s growth and adds to its revenue, it is good.

While at it, also evaluate the company’s debt or borrowings. Debt is not entirely a bad thing. For one, it gives access to financial resources that the company can use to fund growth and expansion. Second, it is less expensive compared to equity. However, if debt exceeds a limit, it can weigh down on the company’s performance. The reason is simple, debt carries interest, which eats into profits.

Study the management

A company is run by a group of people—the management. They are responsible for the future of the company and have the power to make decisions and formulate policies that impact the business. Under good management, a company can do wonders. But under bad management, even a strong company can fall apart. So it makes sense to study the management; find out  – how experienced they are, how their decisions have contributed to the company’s growth, and so on.

Evaluate the prospects of the company

If you want to invest in a stock for the long-term, the company’s product and services must remain relevant for at least 15-20 yrs ahead. Otherwise, would you even profit from a company that shuts shop in the years to come?

Compare the stocks with their peers

Analyse how the stock you want to invest in has performed compared to its peers. While at it, make sure you compare apples to apples and not apples to oranges. Meaning a small-cap stock should be compared to a company under the same market cap category. Find answers to the following questions:

  1. How much returns has the stock generated in a specific timeline, say 1 yr, 5 yr, 10 yr and so on?
  2. Does the company have a competitive edge over its peers?
  3. What are its upcoming projects, and how will that make the company better than its peers?
  4. What is the PE ratio of the company compared to its peers?
  5. What has been the company’s dividend per share, dividend yield and dividend growth rate of the company compared to its peers? (If the dividend is paramount to you)

The ‘Peers’ section on Tickertape’s Stock Pages allows you to compare a stock with its competitors based on ‘Stock Forecast’ as well.

Additionally, you can do a price comparison by choosing your desired stocks and adjusting the timelines, as you can see below.

Stock valuation

At this point, gear up to analyse the stock’s intrinsic value. In plain words, intrinsic value means a ‘fair price’. In stock parlance, it indicates whether the share is undervalued or overvalued. Truth be told, a stock has no ‘correct intrinsic value’. It is subjective and depends on the analyst.

Buying a stock at its intrinsic value or lower can give you a relatively higher profit; lower the purchase price, higher the profit and vice versa, provided the selling price remains constant.

While value investors look to buy an undervalued stock, growth investors look at the earning potential of the company. The latter don’t mind buying an overpriced stock, provided it has the potential to grow at a higher rate to justify the high valuations. So it is important first to decide what type of an investor you are and then decide whether to invest or not based on the intrinsic value of a stock.

Here are some financial ratios you can use to determine a stock’s valuation:

  1. P/E ratio: measures the profit per rupee that you can derive by investing in the stock. For a value investor, a lower P/E ratio is more favourable. Note the ideal P/E ratio differs for every sector. So, it would help to compare the stock’s P/E ratio with peers’ or the industry average to get a fair idea about the stock’s valuation.
  2. Return on equity ratio (ROE): measures how efficiently a company generates profit per unit of equity. The higher the ROE, the better it is. However, a company can have a good ROE due to high debt and low equity. So pair this analysis with the company’s debt-to-equity structure.
  3. Debt-to-equity ratio: shows the proportions of equity and debt used by a company to fund its assets. It also suggests whether the company has ample shareholder’s equity to fulfil debt obligations in case the company goes bankrupt. The lower the ratio, the better it is. However, there is no ideal debt-to-equity ratio as it differs across sectors.

Read more on important financial ratios and valuation ratios.

Head on to the ‘Peers’ tab of Tickertape’s Stock Pages to compare select valuation ratios of your desired stock with its peers’.

Analyse the risk

You may have heard a hundred times before that the stock market is risky. And true to its nature, no stock comes with zero risk. It is up to you – how much risk you can take on. So analyse the risks of investing in stock before jumping in. You could ask the following questions:

  1. Is the stock of a small-cap company? If yes, it is probably highly risky for various reasons. Small-cap stocks are new businesses compared to mid and large-caps, which are mature. The latter will have more experience navigating through challenges and market downturns as they would have been in the game for a long. They also tend to be better placed financially compared to small caps.
  2. How prone is the company to change in government policies? If the answer is highly prone, you may want to track how the stock behaves every time the government changes a relevant policy. For instance, housing loan companies are susceptible to RBI’s repo and reverse rate changes. The stock price rises or falls based on how the market reacts to the hike.
  3. Finally, let’s address the elephant in the room – change in the very fundamentals of the company. Such developments can change the narrative altogether and thus impact the business’ growth for years to come. For instance, what if the company appoints a new CEO who wants to change an important aspect of the business model? What if a new, better competitor enters the industry? How well would the company accommodate such changes? Moreover, are you tolerant of such new developments and risks?

Analyse the shareholdings of a stock

Shares of a company are held by not only retail investors but also promoters, domestic and foreign institutional investors, mutual funds, employees and so on. A change in the holdings of such stakeholders reveals their outlook on the company. For instance:

  1. Promoters: as key personnel, promoters of a company have great control over its affairs, directly or indirectly. They have high stakes in the company. Therefore, a decreasing promoter holding trend may be a red flag as it can indicate that promoters themselves are not positive about the prospects of the company.
  2. Institutional and mutual fund holdings: these stakeholders transact stock in bulk. Therefore, a change in their holdings also indicates their outlook for the stock. If you see high buying activity in stock, the big investors are probably positive about the company’s growth. The opposite is also true.

You can visit the ‘Holdings’ tab of Tickertape’s Stock Page to view the trend of various types of holdings in a company.  

Track the latest news about the company

Finally, keep an eye on the latest developments about the company that is reported in the media. The ‘News’ tab on Tickertape’s Stock Pages collates the latest news about a company.

You would notice that a company having exposure in, say, Russia would have tumbled in response to the war situation. In contrast, defence stocks would gain when the Union Budget announces an increased allocation for the defence sector in India. Likewise, news and developments can impact a stock depending on whether it is positive or negative for the company.

Track your investment to take timely decisions

Investing is not a one-time thing but an ongoing process. Prudent investors don’t invest in a stock and forget about it; they monitor its performance. From time to time, check on how the stock is performing and how the company’s financial performance is evolving. Have the fundamentals changed? Do its future prospects remain intact, or have they gotten better or worsened? Accordingly, you can stay put or consider exiting. This way, you would not only minimise your losses from remaining invested but also free your funds to bet on better avenues.

Now that you have analysed the company on various fronts, it is time to connect the dots and make a meaningful, well-rounded investment decision. So go ahead. But don’t forget that stock analysis is a vast subject, not restricted to the aforementioned pointers. You can add more steps to your analysis if and when required. The goal is to pick fundamentally strong companies that add value to your investment portfolio.


How many types of stock analysis are there?

There are two methods of analysing a stock:
1. Fundamental analysis
2. Technical analysis

What is fundamental analysis?

This type of analysis analyses the company’s fundamentals, such as business segments, management, financials, peers, historical performance, and so on. It also takes into consideration the intrinsic value of stock and the broader economic conditions.

What is technical analysis?

Technical analysis uses the trend in stock price to make conclusions. It believes that historical price movements indicate the future performance of stocks.

How to analyse a stock before investing?

Follow these steps:
-Research the industry in which the company is operating
-Understand the underlying company, what it does, and how it does it
-Study the financial statements of the company
-Study the management
-Evaluate the prospects of the company
-Compare the stocks with their peers
-Stock valuation
-Analyse the risk
-Track the company’s performance

Where can I find information on stocks?

You can find information on stock on the company’s website and in annual reports. Alternatively, you can find company financials for the last 5 yrs on Tickertape’s Stock Pages. Tickertape is a comprehensive investment analysis that offers various tools and features such as Stock Screener, Mutual Fund Screener, Stock Pages, Mutual Fund Pages, Stock Forecast, Stock Deals, and others.

In addition to the financials, Tickertape’s Stock Pages also host a handy investment checklist, key metrics, financial ratios, peer information, corporate actions, and more.

What is the difference between technical analysis and fundamental analysis?

Fundamental analysis takes the fundamental aspects of the company into account, like financial statements, management, industry, economic factors, etc. On the other hand, technical analysis looks at the stock movement and predicts future price movements. 

How to find if a stock is undervalued or overvalued? 

You can use financial ratios like the Price to Earnings (P/E) ratio, Debt to Equity ratio, Price to Book (P/B) ratio or Return on Equity (ROE) to find out if the stock is undervalued or overvalued.

What is considered a good EPS?

A good EPS depends on the company and the market condition. The higher the EPS, the better its profitability. However, EPS should not be considered a sole parameter while investing in any stock.

Aradhana Gotur
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