Stock analysis is a task that requires considerable effort on the part of the analyst. However, when executed accurately, this activity can generate significant results, providing valuable insights for investors and shareholders. In this brief exploration, I will demonstrate the path I follow to analyze stocks.
The industry in which a company operates plays a critical role in stock analysis . This occurs because a company's performance is closely linked to economic conditions specific to the sector. For example, when we see an increase in fuel prices, this can represent a benefit for oil producers, but, on the other hand, harm the performance of transport companies. Therefore, the crucial starting point is a sectoral analysis.
A company's operations nationally or internationally can have a substantial impact on its market value . Global expansion, for example, can open new markets and expand growth potential , consequently increasing the company's value . For example, companies that have a solid export base can represent an attractive option in times of currency devaluation . Therefore, understanding the dynamics of a company's operations is essential to evaluate a stock.
Risk and return table on a scale of 0 to 10
Furthermore, it is necessary to categorize companies into "constant", "cyclical", "turnaround", "special situations" and "fast growing" . This categorization allows for a clearer understanding of what to expect from each company and helps align expectations with the risks inherent to each category . For example, when a company faces financial difficulties, greater volatility in its share price is expected, which translates into possibilities of losses and gains.
Additionally, The size of a company can directly influence share returns. Larger companies tend to be more stable and often offer more modest returns, while smaller companies, due to their more volatile nature, can provide more significant returns, although with greater associated risk .
In conclusion, stock analysis begins with categorizing companies based on their profile, size and industry, providing a valuable starting point for filtering stocks with potential. This methodology provides insights into the potential return and level of risk associated with each company, allowing investment decisions that are more aligned with the intended objectives.
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