Picking a stock for purchase is a comprehensive process. Begin by studying financial periodicals and becoming familiar with basic concepts of stock investing. Understanding stocks, and stock value, requires a broad and holistic understanding of many indicators – but is attainable with an investment of time.

Many aspects come into consideration when buying a stock. Study these for a broad understanding of your potential stock purchase. Without an understanding of these basic indicators and the relationships between them, it can be difficult to determine when a stock’s value is high or low – and when to buy.

 1   Consider Company Earnings

Earnings are the profit a company makes and one of the most significant indicators of company health. Understanding company earnings will help you know whether a current stock price is high or low. Earnings are posted quarterly. Earnings alone do not always dictate stock value, but the relationship between company earnings and stockholder expectations can affect stock value, and is worth understanding.

 2   Consider the Relationship between Company Earnings and the Expectations of Shareholders

Are you purchasing stock from a well established company? Investors expect such a stock to go up when company earnings go up. But a young company with perceived future potential may have negative earnings during startup, and stock prices that continue to increase, based on the confidence of investors. Understanding the interplay between company earnings and the expectations of investors can help you pinpoint whether a stock is a good buy, and when to time your purchase.

 3   Understand Earnings per Share

Earnings per share are calculated by dividing the net earnings of the company by the number of outstanding shares. The value of this calculation is the ability to compare share values across companies. However, other factors, such as investor confidence and whether shares are within the same industry, need to inform your decision. Earnings per share is one ratio of several that can help you refine stock purchasing decisions.

 4   Understand Price per Earnings

Price per earnings is determined by dividing the current price of the stock by the Earnings per share. Price per earnings (P/E) demonstrates the relationship of the stock’s price to its earnings. A high P/E may indicate an overpriced stock that may not have much more room to grow. But a high P/E may also indicate that investor confidence expects good future growth for this stock and its company.

 5   Understand Projected Earnings Growth

An indicator called the Projected Earnings Growth (PEG) can help you determine whether the stock will increase in value over time. PEG is calculated by dividing the P/E indicator by the company’s projected earnings for the year. If company earnings are projected to increase 10 percent over the next year, the P/E is divided by 10.

 6   Understand the Relationship between Earnings and Revenue

Compare stock earnings to company growth. The relationship between these two aspects can signal possible trends. Is company revenue increasing, while stock earnings are staying the same or going down? The company could be expanding into a new market, indicating a dip in earnings for the moment. Are revenues going up while earnings are decreasing? This indicates possible management inefficiencies, or an inability to compete in a new market.

 7   Consider Company Debt to Equity Ratio

If a company’s debt load is high in proportion to its equity, this could indicate a risky investment. Other factors should be considered along with this particular ratio, and your consideration may be affected by your own tolerance for risk. Many of these indicators present a better picture if considered holistically.

 8   Understand the Company

Could you explain to someone, on the spot, what this company does? Could you describe the company’s directive in simple, understandable terms? Be sure you understand the mission of the company you may invest in.

 9   Be Aware of the Stock Price

Pay attention to stock trends and pricing climbs and dips. While one cannot accurately predict the stock market, try to avoid buying high. If the stock takes a dip, this may be the best time to invest.

10   Look for Stocks that Pay Regular Dividends