Assessing the Value of Stocks

Assessing the Value of Stocks

The world of stock trading can be a fascinating place for investors with many turns and twists along the way—but the thrill unfortunately can turn quickly into a thriller for the inexperienced investor. Heavy stock trading is not recommended for novices, but once you get your feet wet with other kinds of trades, you will be ready and eager to take the plunge and trade the over 80 top-tier stocks available to you on Banc De Binary’s trading platform. Stock prices move up and down according to a stock’s demand, which is in turn primarily driven by the success of a company. As a binary options trader, of course, the magnitude of the change in the price should not concern you, but only the direction: will the stock you are about to trade go up or down? Here are some factors to consider in assessing your stocks.

The success of a company, we said, is what drives the price of its stock: greater success means greater demand for the stock by investors, and greater demand always drives prices up. Success in the stock market, moreover, is measured in terms of a company’s earnings. Public companies release earning reports every quarter, but evaluating the significance of their published figures is not as simple as looking up numbers on a sheet. There are various parameters that one can use to assess the true value of the date. Let’s review some of the most important ones.

Earnings per share (EPS): The EPS parameter tells you how much each share would be worth if the company would divide all its profit between each shareholder. The number lets you know how the company is doing comparatively to others in the companies and help you gauge its future health.

Price to Earning (P/E) ratio: This parameter is essentially a compound of the previous one, and is derived by dividing the current share price by the EPS. The result of this calculation shows you how the stock price compares to the company’s earnings (the higher the result the more overpriced the share is likely to be) and how its outlook seems to be shaping up.

Price to Earnings Ratio to Growth Ratio (PEG): Apart from its recorded earnings, each quarter a company also reports on its projected growth, which is given in a percentage of improvement. When this projected growth is used in a division by the company’s current P/E that we saw above, we derive the PEG, which helps investors understand how good the value of a stock actually is in comparison to its price.

Price to Book Value Ratio (P/B): The book value of a company equals the value of a company’s assets as these appear on balance sheets, as opposed to the value that the market places on the company which also includes projections of future growth and earnings. The find the P/B ratio, the price per share of the company is divided by its book value per share. Usually, the lower the P/B is, the more secure the share is considered.

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