Summary:
How to evaluate a stock?
This is a common question that every investor ask to themselves, and most of them are trying to get answers from an expert or someone who can give them an accurate or a reasonable response.
There are thousands of data points available. If you over-analyze or over-think using all available data points then you will end up paralyzing the outcome. So I came up with 12 data points that served me pretty well. It is important to understand the definitions and their association in their right context to get to the most accurate information as possible. Here are the details.
Attributes and Definitions:
Attributes
|
Definitions
|
52 Week Range
|
The highest and the lowest prices
at which a stock has traded in the past 52 weeks.
|
Stock Price
|
The cost of purchasing a stock. It
is also the market value of each share.
|
Book Value Per Share
|
Indicates the accounting value of
each share of stock.
|
Market Cap
|
It is the total money market-value
of the shares outstanding of a public company. It is equal to the share price
times the number of shares outstanding.
|
P/E
|
The price-to-earnings ratio
measures market share price relative to its per-share earnings.
|
EPS
|
Earnings per Share: It is the portion
of company's profit allocated to each share of common stock.
|
Dividend & Yield
|
Dividend: A sum of money paid
regularly by a company to its shareholders.
Dividend Yield: Dividend expressed
as a percentage of a current share price.
|
Price/Sales (ttm)
|
Price to Sales ratio is an
indicator of share price relative to sales (or revenue) per share. A low
ratio may indicate undervaluation while a high ratio suggests overvaluation.
|
Price/Book (mrq)
|
Price to book ratio is used to
compare a stock market value to its book value. A low value may indicate
undervaluation while a high value suggests overvaluation.
|
Revenue (ttm)
|
Revenue is the total amount of
money that is brought into a company by its business activities. The more the
better.
|
Total Cash (mrq)
|
Total cash is sum of all the cash
a business has on its books. Too little is not good.
|
Total Debt (mrq)
|
Total debt is sum of all the debts
a business has on its books. Too much will kill the business.
|
Note:
ttm -Trailing Twelve Months
mrq - Most Recent Quarter
Evaluations:
The best way to evaluate a stock is to compare the stock with its closest competitor. Get the facts and figures side by side and do the comparison to determine the winner. Its not easy, but its not hard either. In addition to the key data points, there are other financial statements that are worth a review. Financial statement such as Income Statement, Balance Sheet and Cash flow statement can provide much more details. For more detailed report, please check out Yahoo Finance or Google Finance.
Let us start our stock evaluations for the week ending Sep 26, 2015.
Case 1: Google vs Apple
Google
(GOOG)
|
Apple
(AAPL)
|
Winner
|
|
52 Week Range
|
486.23
– 678.64
|
92
– 134.54
|
A good starting place.
Winner: N/A
|
Stock Price
|
611.90
|
114.71
|
Very critical to understand
the stock price relative to 52 week range. Price at the lower end is
preferred over higher.
Winner: Apple
|
Book Value Per Share
|
163.07
|
22.03
|
It is useful information to know relative to the book value.
Price/Book value can determine which is better.
Winner: N/A
|
Market Cap
|
419.53B
|
654.16B
|
Higher the value, safer is your
investment.
Winner: Apple
|
P/E
|
28.83
|
13.27
|
Lower the value, better is your
investment.
Winner: Apple
|
EPS
|
21.22
|
8.65
|
Higher the value, better is your
investment.
Winner: Google
|
Dividend & Yield
|
N/A
|
2.08
(1.82%)
|
Dividend stocks outperform
non-dividend stocks in the long run.
Winner: Apple
|
Price/Sales (ttm)
|
6.16
|
2.92
|
Winner: Apple
|
Price/Book (mrq)
|
3.84
|
5.22
|
Winner: Google
|
Revenue (ttm)
|
69.61B
|
224.34B
|
Winner: Apple
|
Total Cash (mrq)
|
67.72B
|
34.86B
|
Apple is a dividend stock, whereas
Google is non-dividend stock.
Winner: N/A
|
Total Debt (mrq)
|
7.93B
|
54.42B
|
Winner: Google
|
Winner: Apple
Case 2: AT&T vs Verizon
AT&T
(T)
|
Verizon
(VZ)
|
Winner
|
|
52 Week Range
|
30.97
– 36.45
|
38.06
– 51.73
|
Winner: N/A
|
Stock Price
|
32.33
|
44.22
|
Winner: AT&T
|
Book Value Per Share
|
16.73
|
2.81
|
Winner: N/A.
|
Market Cap
|
198.86B
|
179.78B
|
Winner: AT&T
|
P/E
|
31.95
|
18.42
|
Winner: Verizon
|
EPS
|
1.01
|
2.40
|
Winner: Verizon
|
Dividend & Yield
|
1.88
(5.84%)
|
2.26
(5.13%)
|
Winner: AT&T
|
Price/Sales (ttm)
|
1.49
|
1.39
|
Winner: Verizon
|
Price/Book (mrq)
|
1.92
|
15.70
|
Winner: AT&T
|
Revenue (ttm)
|
132.99B
|
128.99B
|
Winner: AT&T
|
Total Cash (mrq)
|
20.96B
|
3.57B
|
Winner: AT&T
|
Total Debt (mrq)
|
116.24B
|
113.85B
|
Winner: Verizon
|
Winner: AT&T
Case 3: GoldCorp vs Barrick Gold
GoldCorp
(GG)
|
Barrick Gold
(ABX)
|
Winner
|
|
52 Week Range
|
12.19
– 25.00
|
5.91
– 13.36
|
Winner: N/A
|
Stock Price
|
13.37
|
6.57
|
GoldCorp stock price is nearer to
its 52 week low price. Best time to invest.
Winner: GoldCorp
|
Book Value Per Share
|
20.88
|
8.73
|
Winner: N/A.
|
Market Cap
|
11.10B
|
7.65B
|
Winner: GoldCorp
|
P/E
|
N/A
|
N/A
|
Winner: Not Applicable
|
EPS
|
-2.62
|
-2.30
|
Not good at this time.
Winner: N/A.
|
Dividend & Yield
|
0.24
(1.70%)
|
0.08
(1.22%)
|
Winner: GoldCorp
|
Price/Sales (ttm)
|
2.89
|
0.80
|
Winner: Barrick Gold
|
Price/Book (mrq)
|
0.65
|
0.75
|
Winner: GoldCorp
|
Revenue (ttm)
|
3.88B
|
9.61B
|
Winner: Barrick Gold
|
Total Cash (mrq)
|
994.00M
|
2.12B
|
Winner: Barrick Gold
|
Total Debt (mrq)
|
3.54B
|
12.82B
|
Winner: GoldCorp
|
Winner: GoldCorp
