InvestorQ : What are some of the key things to check before reading and interpreting the stock quotes of particular company?
Mary Joseph made post

What are some of the key things to check before reading and interpreting the stock quotes of particular company?

sara Kunju answered.
3 years ago

Remember that when you look at a stock price of a company, you are not just looking at the price number but also at the business behind the stock price. You need to give adequate weightage to that. The stock price page on the newspaper or a magazine has a wealth of information that you can focus on. Here are some of the key things you must bring to focus. The stock price page is a wealth of information. Open any financial newspaper and the markets page is a collection of closing prices of the top 800/1000 stocks. However, the stock price page is not just about static prices alone. There are some other very critical information about the stock and the company which can also give you some unique technical insights into the stock. Here are 7 things you must read while you are checking stock quotes…

Check out the price range of the stock

Normally, the stock page gives you the open price, day high, day low and closing price. Some papers also give you the VWAP price of the last half-hour which is actually a lot more indicative. This gives you an idea of the range that the stock has quoted at. Most newspapers also provide you the 52-week high and low of the stock. This gives you a broader perspective of whether the momentum is in favour of the stock or otherwise. Normally, in a trending market, the stocks with momentum in their favour tend to trade closer to their 52-week high price.

Check out the P/E ratio of the stock

P/E ratio of the stock is its valuation metrics. Normally, companies with high growth and high ROE normally tend to have high P/E ratios. You must not look at P/E ratios in isolation as they mean nothing. It has to be looked at with reference to the growth rate and the ROE of the company. That is the reason FMCG companies and private banks tend to enjoy much higher P/E ratios compared to sectors like steel and utilities. P/E ratios reported in the stock price page is normally based on trailing 4-quarter earnings.

What is the dividend yield and P/BV of the stock?

This is again a kind of valuation metrics for companies. Most newspapers also report the P/BV ratio and the dividend yield on a daily basis. The P/BV is the stock price divided by the book value (net worth) of the share. This measure does not have too much significance for most sectors but for banks and finance companies this ratio is significant. Additionally, P/BV can be used as a proxy in cases where the company in question is loss-making. Dividend yield is calculated by dividend the dividend per share by the stock price. Normally, dividend yields above 4% are considered to be attractive and act as a support for the market price in a worst case scenario.

Stock volumes and volume trends

This is a very important measure to study whether the price trend is sustainable or not. Rising prices with rising volumes is a good sign. Similarly, falling prices with rising volumes is a negative signal. For mid-cap and small-cap shares the volume in terms of number of shares is more relevant than the volume in value terms. The stock page captures sharp spikes in volumes which is normally a lead indicator of positive vibes in the stock. Of course, when it comes to small cap stocks one must be cautious of artificial spikes in volumes and circular volumes.

New highs and new lows

Normally, stock price pages also provide you information on new highs and new lows hit by stocks. The information is provided for 52-week high/lows and for all-time high/lows. These provide clues on positive and negative breakouts. Normally, stocks that hit 52-week highs and sustain at those levels tell a larger story of re-rating happening in the stock. The reverse happens in case a stock is consistently hitting new lows. The comparison of the price with the all-time high/low also gives you a perspective of the long-term price cycle of the stock.

Weekly and monthly gainers and losers

Your stock price page also provides analytics on stocks that have been gaining over different time frames like 1 week, 1 month, 3 months, 6 months etc. This gives you a clear idea where the short term momentum is concentrated in. Stocks that are among the outperformers or underperformers in all the time brackets clearly have short term momentum either in their favour or against them.

Futures prices and open interest

As we know, futures are leveraged trades where a trader can take a position by paying a small upfront margin. When you look at futures prices, you also look at the open interest which shows the cumulative open position in the market on that particular stock. The combination of price and open interest (OI) can give significant clues. For examples rising prices with rising OI is a sign of aggressive accumulation. Rising prices with falling OI is a sign of aggressive short covering. On the other hand, falling futures prices with rising OI indicate accumulate of short positions and is a negative signal. Lastly, falling futures prices with falling OI, indicating unwinding of positions and gives hope of short covering.

Why are all these items important in the stock price page? That is because the stock price page is more than being a static collection of data. It is a lot more. It also gives important analytics about a company and that includes metrics pertaining to range of the stock price, the mean stock prices, some important dividend related and yield related metrics, key data pertaining to valuations like P/E, P/BV, Price / Sales etc. These data points can be useful addition to your analytical arsenal.