Indian stock market is a well diversified market and it comprises of stocks belonging to different sectors. Traders face a lot difficulties to decide in which stock they should trade. It is very important to select good performing stocks as performance of stocks will only decide what returns you earn from market. Often traders prefer to follow trading tips, mcx tips as suggested by experts of market to be on the safer side and earn profitable returns from market. Studying different fundamental and technical factors related to stocks helps in understanding whether a trader should trade in it or not.
Following are some indicators used to asses value and growth potential of stocks :
1) Earning per share (EPS)
EPS is the measurement of profit made by a company over a year divided by total number shares issued by it in market. While calculating EPS, preferred shares are not included only common shares are included.
EPS indicates the amount shareholders will get for each share they hold if company distributes its profit. This ratio helps in understanding which companies are performing well. Companies which shows steady growth and earnings are likely to perform well than companies which have inconsistent earnings.
2) Price to earning (P/E) ratio
Among all indicators this is considered to be the best. Though P/E ratio has some imperfections , it is the most widely used indicator for valuation of stocks. It is calculated by dividing current market price of share by company's EPS. All information required to calculate this ratio is easily available on Internet or reports issued by companies.
3) Debt to equity (D/E) ratio
This ratio is a leverage ratio. It is calculated by dividing total liabilities by equity. This indicator helps in understanding how much suppliers, creditors have invested in company and how much shareholders have invested. It is easy to calculate this ratio and determine equity- liability relationship of a company.
4) Dividend yield
This is basically the measurement of return on dividend as a percentage of stock price. This ratio is calculated by dividing annual cash dividend per share by current market price of stock. You can determine how much cash-flow you are getting with the help of this indicator.
These are few indicators which can be used for assessing stocks performance. Along with these there are many other indicators as well which are sometimes not easy to determine as well. Stock market traders can consult financial advisory services provider to pick good performing stock if they lack in sufficient market knowledge. Traders can use these important indicators and learn in which stocks they should trade. Market offers ample opportunities to earn profitable returns. In order to become successful trader, a trader needs to learn how to use these opportunities in most efficient manner. Earning good returns from market is not much difficult, stay disciplined and well informed to sustain here and earn well.
FAQs
Price-to-earnings ratio (P/E): Calculated by dividing the current price of a stock by its EPS, the P/E ratio is a commonly quoted measure of stock value. In a nutshell, P/E tells you how much investors are paying for a dollar of a company's earnings.
What are the indicators of growth stocks? ›
By analyzing key financial ratios such as revenues, cash flow, price-to-earnings (P/E), price-to-sales (P/S), and the price/earnings-to-growth (PEG) ratio, investors can gain insights into a company's valuation, growth prospects, and potential for future profitability.
How do you determine the value of a stock and growth stock? ›
Growth stocks tend to be more volatile than other types of companies, with share price fluctuations. Investors buy growth stocks to earn profits from rapid price appreciation, rather than income from dividends. Value stocks remain steady through all sorts of market conditions and take time to gain in price.
What is the best indicator of stock value? ›
The relative strength index is among the most popular technical indicators for identifying overbought or oversold stocks. The RSI is bound between 0 and 100. Traditionally, a reading above 70 indicates overbought, and below 30, oversold.
What are the three indicators of the stock market? ›
The DJIA, the S&P 500, and the NASDAQ indexes all are indicators of the current state of the stock markets.
How to tell if a stock has growth potential? ›
Key Attributes of Growth Stocks
- Revenue Growth: Consistent and expansive revenue growth is a primary sign of a growth stock. ...
- Earnings Growth: In addition to revenue, earnings growth is crucial. ...
- Market Opportunity: Companies with large or growing market opportunities are often suitable for growth investing.
Gross domestic product (GDP) is the most common measure of economic growth. This is because GDP—which measures the value of goods and services produced within a country—is often used proxy for monetary expenditures.
What are the indicators of value? ›
Indicators of value are quantitative and qualitative measures of the importance of nature to people. Indicators used to express the value of nature can be biophysical, economic and socio-cultural.
Which is the most successful stock indicator? ›
Below, we delve into the most effective indicators used by intraday traders, offering practical applications and examples.
- Bollinger Bands. ...
- Relative Strength Index (RSI) ...
- Exponential Moving Average (EMA) ...
- Moving Average Convergence Divergence (MACD) ...
- Parabolic SAR. ...
- Pivot Points.
Growth investors often look to five key factors when evaluating stocks: historical and future earnings growth; profit margins; returns on equity (ROE); and share price performance.
Traders use the MACD indicator to identify changes in momentum and the direction of a trend. MACD is another very popular technical indicator in stock trading, so it is important to have an understanding of how it works and what it shows.
What are big 3 indicators? ›
Big 3 combines Taylor's checklists and favorite indicators to create the Big 3 signals. Big 3 stands for Trend, Structure, and Momentum. Criteria that when met can lead to powerful directional moves.
What are leading indicators in stock market? ›
A leading indicator is a tool designed to anticipate the future direction of a market, in order to enable traders to predict market movements ahead of time. In theory, if a leading indicator gives the correct signal, a trader can get in before the market movement and ride the entire trend.
What indicates a growth stock? ›
Growth stocks are shares in companies that are expected to grow faster than the stock market as a whole. Growth stocks generally have higher price-to-earnings ratios than other stocks, and they rarely pay a dividend.
What are the indicators of growth? ›
Gross Domestic Product (GDP), a widely used indicator, refers to the total gross value added by all resident producers in the economy. Growth in the economy is measured by the change in GDP at constant price.
What is the best indicator of a company's growth? ›
Revenue Growth Rate
It is a crucial metric that indicates the company's ability to generate more income over time. Calculate the revenue growth rate by subtracting the previous period's revenue from the current period's revenue.
