We all want a good stock to invest in and to avoid the bad ones. So what is a good stock? What are the best companies to invest in?
You will need to do your homework and plenty of reading to find the right stock for your investment.
As with all markets the price of the goods relates to supply and demand. Therefore, when a company is expanding and earning more their stock price will also increase, as more people want to invest in the company. If a company is not performing well and has a poor growth record and low profits the basic value of the company goes down. Then this in turn will cause their stock to go down, as fewer people want to invest in the company.
One simple way you can discover if a company is worth its stock price is by dividing the average price of the stock over, say, a one-year period by the earnings per share over the same period. This is not the best nor is it the only indicator you should use to discover if a company is a good stock to invest in.
Another useful way of discovering if a company is a good stock to invest in is by comparing the book price of a company to the market price, or by checking how much the company pays its shareholders in dividends. Not all stocks pay dividends but a dividend is a piece of the company profits that is paid to the shareholders.
One thing you must know is what type of investor are you. Are you in it for the long or the short term? If you are after good stock to invest in for the long term then you should be looking at the larger well established and well known companies. These investments will not offer the best short-term profit but they will prove to be stable and give long term profit.
If, however, you are more interested in short term investment then good stock investment will be in smaller companies, which are showing current growth. This is a riskier strategy but can be very profitable.
Short term investors looking for good stock to invest in will not be interested in the general health of the company but will be looking at the trends the stock price is showing. You will have to decide which way you think the market is going to go.
You need to establish which strategy is right for you and to be committed to seeing it through and you will discover what is a good stock to invest in.