How to Analyze (Fundamental) Stock Statistics
Have you always wondered what those funky numbers mean under the chart of your favorite stock? Or maybe why Yahoo Finance has a whole tab dedicated to pages of numbers that the stock has reported over the years. One could assume that these numbers are important (even if you don't know what they mean). Luckily, the fundamental statistics you need to examine don't require a business degree, just an article from Monk Investments. Let's dive in!
Earnings per Share (EPS)
EPS shows how much profit a company makes per share of its stock. As you could've guessed, EPS is calculated using (Net Income - Dividends on Preferred Stock) / Average Outstanding Shares. Meaning, the higher this number is (usually) depicts stronger profitability. The only thing that could lead investors astray using EPS is the D/E ratio (debt to equity), but more on that later! The EPS often changes post earnings; this is part of the reason why companies will low-ball their earning expectations, to keep the EPS at a desired level. EPS levels range depending on the company, but a "standard" range is anywhere from 0-20.
Price-to-Earnings Ratio (P/E)
P/E is an extremely important fundamental statistic. This compares the current share price to the EPS. For value investors, this and PEG are by far the most looked at statistics as they can instantly tell you if the company is under, fairly, or overvalued. Thus, you want the P/E as low as possible if you are looking for a buy opportunity. However, depending on the industry, the P/E variation is hefty (that's where PEG comes in Handy). Warren Buffet has a rule that you should only buy stocks less than or equal to a P/E of 15; but to each their own.
Price-to-Earnings Growth (PEG)
This is most likely the most underrated stock statistic to exist. Similar to P/E, PEG measures current share price to the earnings per share; however, the earnings per share is the expected growth of the company. Thus, PEG is a speculation dependent on an uncertain earnings report. While this sounds discouraging and like an unreliable statistic, if you get a company that often meets or beats earnings, this will be your go-to statistic for when to buy, hold, and sell. As a recent example, United Healthcare (UNH) is a reputable company with a recent series of unfortunate events you may have seen in the news. With a PEG of .80 (at the time of writing) the healthcare giant is trading at 4/5 of what it should be according to its expected earnings coming this July.
Debt-to-Equity (D/E)
Almost all companies available to trade today have or currently do have some sort of debt. D/E makes it apparent to the common trader whether a company has a common leverage tactic using debt, or is drowning trying to finance common operations. While this isn't a statistic you can exactly study, it's great to glance at for a company you aren't familiar with to ensure they are profitable. I personally have lost my fair share of money in small market-cap stocks that were secretly going under because they had more money owed than three times their market cap.
No one should feel like they have to trade in the dark. By learning how to interpret the funky little numbers that are very tempting to avoid, becoming an extremely profitable investor is imminent. With lots of homework and practice, eventually statistics will be second nature and you can judge a stock off of a singular glance. Remember, not even statistics can tell the whole story of a stock, so don't count it going the direction a certain statistic may indicate. Hopefully this article helped the lower half of your favorite market watch seem a little less confusing. Happy investing!