How Do You Determine the Best Stock to Buy?


Quick Answer

Determining the best stock to buy requires in-depth research of many companies, explains The Street. Learn about what each company does, how profitable each is, and the earnings history and outlook for each.

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Full Answer

Stick to buying stocks in companies whose business model and industry you understand, recommends The Street. Read the earnings reports to determine which companies are profitable and have had steady growth over time. Companies with more volatile growth than others may not be safe investments. Track down news articles about the company to ensure there are no scandals or questionable practices in the company's past. Find out the stock's price-to-earnings or price-to-sales ratios on finance websites. Learn about the company's competitors, including foreign competitors, and what share of the market it has.

Frequent turnover of high-level executive positions may be a sign of instability, reports The Street. A high debt-to-earnings ratio also indicates a potentially risky investment. Read the company's annual and quarterly reports to the Securities and Exchange Commission to see if it thoroughly details accounting practices, operating assumptions and risks that might undermine its growth.

Revisit all these topics after purchasing the stock to evaluate if the company's growth and profits are still sustainable, advises The Street.

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