How do you know that the price you see is the right price of a stock? Because, the price you see, is the right price in the market. But, is it fair? Do the market always have right?
You need to do some homework to find the right price. Sometimes, the stock is overvalued, and sometimes the stock is undervalued. So, you need to do a fundamental analysis.
Look for the fundamental financial levels. This type of analyses examines key ratios of a business and gives you a great idea to determine the value of the stock and it`s financial health.
Sometimes the stock price is overvalued like Twitter at the moment. They do not earn money right now, but investors expect them to earn money sometimes in the future. The goal for fundamental analysis is to determine the current worth of the company and how the markets values the stock today.
It`s much better and more fun to follow stocks more closely if you know the fundamentals and the key ratios and terms.
First of all: It`s all about EARNINGS! That`s what investors want to know. The questions is: how much money do they earn today, and how much money will earn tomorrow?
I have written about it sometimes during this earning seasons. Earnings are profits, and that`s what buying a company is about. Stock prices follow earnings and in some cases, a regular dividend. When the earnings goes up, the stock price goes up. When the earnings goes down, so do the stock price.
Earnings are very important, but that doesn`t tell you anything about how the market values the stock. That`s why you need to use fundamental analysis tools. They are easy to calculate, but most of them is done on websites like cnn.money.com. This makes it easy to compare the stocks too.
The most popular fundamental analyses is P/E, EPS, PEG, P/S and P/B. You also have Dividend Payout Ratio, Dividend Yield, Book value and Return on Equity.
None of this numbers in this analysis will give you a great buy or sell signal by itself, but it gives you a good picture of the stock and it will become benchmarks to measure the worth of the stock you want to invest in.
In my opinion, Twitter is not worth $50 today, but investors in the market have right, and expect them to earn money sometimes in the future. This is how they valued stocks in the late 90`s. Some tech stock prices was extremely high despite their low earnings, and that gave us the tech bubble.
Normally, investors are not so patient. If Twitter do not earn money within a very short time, I think the stock price will decline. Anyway, this is why it makes this so funny to be in the stock market.
Weaker gold prices is expected this week, as the price dropped below it`s support at $1300. Again. The gold price can now go below the October low. The markets is also expected to be (in theory) a very quiet one, with earnings coming to a close and a light week for economic releases. News today: Bank Holiday, Markets Open.
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