How to Research Stocks: A Step-by-Step Guide

how to research stocks
Oct 3, 2023 min_read

Are you considering taking the plunge into investing in stocks but need help knowing where to start? Analyzing stocks and learning about the stock market can feel overwhelming and intimidating. However, with the right strategies, it doesn't have to be.

In this blog post, we'll walk you through a tried-and-true methodology for how to research stocks that should set you up for success in creating your investing strategy.

Lost in the stocks? Find the way by understanding your risk tolerance, then move on to understanding what publicly traded companies do, what products they offer, how they make money, and how they've performed in the past. 

From understanding key concepts such as individual stocks and financial statements, identifying reliable sources of information, and more – continue reading to learn how to research stocks like a pro!

how to research stocks

What Is Stock Research?

Stock research is the process of looking at various valuation metrics of a company, including its financials, past performance, leadership team, and possible competition within the same industry.

This analysis helps future investors examine stocks and determine their suitability for their investment portfolio. That's why we're here to help you learn how to research stocks! Researching stocks will help your cash flow and overall personal finance improve.

Understand the Two Types of Stock Analysis

When analyzing stocks, you can go two primary ways – fundamental analysis and technical analysis.

Fundamental Analysis

Fundamental analysis is rooted in the belief that a company's stock price doesn’t always accurately represent the intrinsic value of the underlying business. This type of analysis is a primary tool for value investors seeking the most promising investment prospects.

Fundamental analysts use various valuation metrics and information to assess whether a stock is reasonably priced. This analytical approach appeals to investors seeking lucrative long-term investing goals.

Technical Analysis

Technical analysis is the assumption that a company's current stock price incorporates all relevant information about the company's core business and tends to follow trends. In simpler terms, analyzing a stock's price history may assist in predicting its future behavior.

Identifying patterns in stock charts and discussing moving averages are standard practices in technical analysis, which primarily concentrate on short-term price fluctuations.

4 Steps to Research Stocks

Before we begin – people consider stocks long-term investments because they carry a lot of risk; you need time to weather any ups and downs and benefit from long-term gains. That means the best investment strategy includes investing in stocks with the money you won't need for the next five years.

research materials

Gather Your Stock Research Materials

Begin by examining the company's financial statements. Quantitative research involves gathering a few documents that companies are mandated to submit to the U.S. Securities and Exchange Commission (SEC):

  • Form 10-K: Annual reports containing audited financial statements. Here, you can analyze the company's balance sheet, income statement, and cash management, as well as the company's revenue and operating expenses.
  • Form 10-Q: Quarterly reports providing updates on operations and financial outcomes.

Basically, forms like the 10-Q are like a company’s Instagram account, providing every major update about the company.

The SEC's Electronic Data Gathering, Analysis, and Retrieval (EDGAR) website offers a searchable database for the forms mentioned above. It’s a valuable tool for researching stocks. This data will aid in comparing a company's performance against other investment options.

You can find these annual (10-K) and quarterly earnings reports (10-Q) on every company's investor relations page or by searching for a company's records in the SEC's EDGAR database online.

If you're pressed for time when researching stocks, you can find critical financial documents and vital financial ratios on your brokerage firm's or significant financial news websites. Regularly reading up on industry trends will also give you a competitive advantage.

Redefine Your Focus

To avoid feeling overwhelmed by the mass of numbers in financial reports, focus on the following items. These will provide valuable insight into the financial health of a company:



Revenue is the income generated by a company within a particular time frame, offering a broad view of its financial performance. You can classify revenue into operating revenue (from core business activities) and non-operating revenue (including one-time events such as asset sales).

Net Income

A company's net income represents its earnings after deducting operating expenses, taxes, and depreciation from revenue. Basically, a company's revenue is the same as your gross salary. A company’s net income is the amount you have left after paying taxes and living expenses.

Earnings and Earnings per Share (EPS)

Earnings per share (EPS) measures a company's profitability by dividing quarterly or annual income by the number of outstanding stock shares. The higher a company's EPS, the greater the profit and value investors perceive.

Price to Earnings Ratio (P/E)

To determine a company's price-to-earnings (P/E) ratio, you can divide its current stock price by earnings per share. You can calculate the trailing P/E ratio using the company's revenues from the past.

The forward P/E ratio considers forecasted earnings from Wall Street analysts. Yes, like from the Wolf of Wall Street. This P/E ratio indicates the value investors place on the company's profits, showing how much they are willing to pay for each dollar earned.

Return on Equity (ROE) And Return on Assets (ROA)

Return on equity (ROE) highlights how much profit a company generates with each dollar shareholders have invested. ROA shows what percentage of its profits the company earns with each dollar of assets.

You can derive ROE and ROA by dividing a company’s annual net income by one of those measures. These percentages also tell you how efficient the company is at generating profits.


Debt to EBITDA Ratio

Assessing a company's financial health involves examining its debt. The debt-to-EBITDA ratio is beneficial for beginners among the various debt metrics.

Anyone can calculate this ratio by referencing a company's financial data for total debts and its income statement for EBITDA (earnings before interest, taxes, depreciation, and amortization). A high debt-to-EBITDA ratio may indicate a riskier investment during times like a recession.

Price to Book Ratio (P/B)

A company's book value represents the net value of its assets. Imagine it as the hypothetical amount of money the company would receive by liquidating its assets.

The price to book (P/B) ratio compares a company's stock price with its book value. It's most effective when used alongside other metrics for comparing businesses within the same industry.

Price to Sales Ratio (P/S)

The P/S ratio is a valuation ratio comparing stock prices to revenues. P/S indicates the value financial markets have placed on each dollar of a company’s sales or revenues.

The ratio describes how much someone must pay to buy one share of a company relative to how much that share generates in revenue for the company. Generally speaking, the lower the P/S ratio, the better.

Perform Qualitative Stock Research

Quantitative stock research uncovers a company's financials, while qualitative stock research reveals vivid details that accurately depict its operations and prospects.

As Warren Buffett famously advised, buying stocks should be driven by a desire to own a company rather than expecting its stock to rise. When you invest in stocks, you acquire a personal stake in a business.

To screen potential business partners, consider the following questions:

company money

How Does the Company Make Money?

It's evident in some cases, like a retailer specializing in selling a company's product. However, it may be less obvious, like a fast-food company that earns revenue from franchise sales or an electronics store that relies on consumer financing.

A valuable principle that has proven effective for industry leaders is to invest in companies that align with common sense and are easy to understand.

Does This Company Have a Competitive Advantage?

Look for something about the business that makes it difficult to imitate, equal, or eclipse.

Competitive advantages include the brand, business model, ability to innovate, research capabilities, patent ownership, operational excellence, or superior distribution capabilities.

The more challenging it’s for competitors to breach the company’s moat, the stronger the competitive advantage.

How Good Is the Management Team?

A company is only as good as its leaders. You can learn about management teams by reading their words in the transcripts of company conference calls or any annual report.

Aside from conducting stock research, it's crucial to look up the company’s board of directors and the people representing shareholders in the boardroom.

Put Your Stock Research Into Context

Before purchasing any stock, it’s crucial to understand the company and the reasons that justify a long-term partnership. Crucially, context plays a vital role in achieving this.

When considering long-term context, broadening your research scope and examining historical data is essential. Broadening your research scope will provide valuable insights into the company's financial situation, resilience amidst challenging times, responses to obstacles, and capacity to improve performance and deliver value to shareholders.

To gain perspective on the company, you must look at stock analysis and critical ratios compared to industry averages and similar businesses. Many brokers provide research tools on their websites, including a stock screener, which is convenient for making these comparisons.

Investing and buying stock can be intimidating at first, but with the help of our simple and comprehensive guide, you can develop the skills you need to become a successful investor. Learn all there is to know about the industry or company of your choice, and watch your portfolio grow as you join the stock market. 

And while you research, why not make some money using Honeygain? It's the first-ever app that lets you make money online by simply sharing your internet connection. 

Download the app on your phone or laptop, leave it running, and watch your earnings grow while you research stocks. Whoever said multitasking is hard?