How to Use Stock Ratings Tool
Making informed investment decisions requires thorough analysis of potential investments. Stock Ratings Tool helps you evaluate stocks using fundamental metrics, technical indicators, and comparative analysis. By examining key financial ratios and growth metrics, you can identify stocks that offer the best risk-adjusted return potential for your portfolio.
Fundamental analysis examines a company's financial health through metrics like price-to-earnings (P/E) ratio, revenue growth, profit margins, debt levels, and return on equity. These metrics help determine whether a stock is overvalued, undervalued, or fairly priced relative to its earnings and growth prospects. Combining fundamental analysis with technical analysis provides a more complete picture.
Fundamental analysis answers 'what to buy' by evaluating a company's financial health and intrinsic value. Technical analysis answers 'when to buy' by analyzing price patterns and momentum. The best investors use both approaches together for a comprehensive view.
Key Financial Ratios for Stock Analysis
| Ratio | Formula | Good Range | What It Reveals |
|---|---|---|---|
| P/E Ratio | Price / Earnings per Share | 10-25 (varies by sector) | How much investors pay per dollar of earnings |
| PEG Ratio | P/E / Earnings Growth Rate | < 1.0 (undervalued) | P/E relative to growth rate |
| Debt-to-Equity | Total Debt / Shareholders' Equity | < 1.0 (conservative) | Financial leverage and risk |
| Return on Equity | Net Income / Equity | 15%+ (strong) | How efficiently management uses capital |
| Profit Margin | Net Income / Revenue | 10%+ (healthy) | Profitability of the business |
| Current Ratio | Current Assets / Current Liabilities | > 1.5 (healthy) | Short-term financial health |
Stock Analysis Framework
- 1Graham formula: $4.50 x (8.5 + 2(12)) x (4.4/5.5)
- 2= $4.50 x 32.5 x 0.80
- 3= $117.00 intrinsic value
- 4Current price: $95.00
- 5Margin of safety: ($117 - $95) / $117 = 18.8%
Comparing Stocks Effectively
- Compare stocks within the same sector for meaningful analysis. A tech stock's P/E of 30 is not comparable to a utility's P/E of 15.
- Look at multiple years of data (3-5 years) to identify trends rather than relying on a single quarter.
- Compare revenue growth rates alongside profit margins to identify companies growing efficiently.
- Check insider ownership and institutional ownership for alignment of interests.
- Review analyst consensus ratings but form your own opinion based on data.
- Use PEG ratio (P/E divided by growth rate) for the best single metric of growth-at-a-reasonable-price.