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fundamental stocks analysis

Fundamental Analysis on stocks: How do you do it?

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Fundamental Stocks Analysis

Fundamental Stocks Analysis

When you do a fundamental stocks analysis, all you want to gain out of it is to understand how the company operates, their strategy, the success rate of their strategy, the financial health of the business and the company  future plans. By reading and analysing reports you will know how the company is performing and how healthy the company is in the current market condition. If you read the reports of the competitors as well then you will what position your company is on the market.

Why do people use fundamental stocks analysis?

There is an idea in the markets that the stock market may value a company wrong from time to time. Profits can be made by finding stocks that are underpriced. According to the methodology of fundamental stocks analysis the market will eventually value the stock at the right price.

One way of performing a fundamental analysis on stocks is to analysing the financial reports from companies. Each quarter the company gives out their financial result that they have achieved in the previous quarter. By analysing these financial reports, you will gain a better understanding and insight of the value of different company and you will understand how they got priced in the stock market. By doing this you will get to know if a stock is overpriced or underpriced.

5 key factors of a fundamental stocks analysis to look at

  1. Earnings

The first key element to look at when doing a fundamental analysis on stocks is earnings. You need to know what the earnings are. When you know what the earnings are, check it and compare it to the forecasted earning that was done by the CEO of that company. This way you will know if the company strategy is working good. And if the company is profitable or not. Future earnings are a key factor as the future prospects of the company’s business and potential growth opportunities often determines the stock price.

When you are performing a fundamental stocks analysis on you will find out that the factors that determines the earnings of a company are revenue, cost , assets and liabilities. In order to get a simple view on the earnings is too look at the earnings per share (EPS). The EPS is calculated as follow: The total earnings of a company divided by the numbers of the outstanding shares of a company.

  1. Profit Margins

The next key factor to look at in the fundamental stocks analysis is the Profit Margins. Now there is one thing that you need to know first and that is that the total revenue of a company doesn’t tell you the whole story of how well the financial situation is of a company. When you look at the profit margin of company it gives you a new information insight on the financial situation of a company. For instance a profit margin can tell you how much money a company keeps from it’s revenue. This profit measure is therefore extremely useful for comparing similar companies that operates in the same markets. It’s one of the best method to determine which company performs better in a certain market

A high profit margin indicates that a company has lower cost and therefore more profit. Some professional investors and hedgefund managers use the profit margins to see which company has a better control of cost in the same market.

  1. Return on Equity (ROE)

Return on equity is a financial ratio in the fundamental stocks analysis that measure how much profit is being made with the current available equity of the company. Basically it tells how much profit is being made with your investment.

Example:

Company A and company B are both making a profit of $10 million. However company A has a equity of $100 million while company B has an equity of $500 million. In this case the ROE of company A will be 10% and the ROE of company B will be 5%. What this tell us is that company A make the same profit as company B but with lesser equity. If company A had the same equity as company B, company A would have made much more profit. In this case based only on the ROE it would be a good idea for a investor to invest in company A as he gets more profit.

  1. Price-to-Earnings (P/E)

Price to earnings (P/E) is a other very popular financial ratio in the fundamental stocks analysis. What the P/E does is that it tells you quickly what the value is of a stock. The calculation of the value P/E value goes as follow: current market price divided by the earnings per share (EPS).

What does the value of a P/E of a stock tell?

A low P/E value means that a stock is under valued. When a stock is under valued it basically means that the current stock price is cheap and it hasn’t reach the price that it should be.  A high P/E means that the current stock price is more expensive. Now you might think that when a stock has a high P/E value that the stock price will go down. But often it doesn’t go down. As the stock price includes many factors such as earnings, profit margin and growth potential. Often a high a P/E of a stock indicates that many traders and investors believes the current stock value is under valued as they believe that the company will earn a lot more in the future. Therefore although the P/E is high they still see it as cheap compare to the future worth.

  1. Price-to-Book (P/B)

Price to book ratio is a financial ratio in the fundamental analysis stocks that compare the stock market value against its book value of the company. The calculation for this financial ratio is as follow: current share price divided by the book value per share (according to the latest financial statement) or use the market capitalisation of the company and divided it by all the shareholders equity.

So what does this financial ratio tells you about the company? What the ratio tells you is that if you are paying too much or too little for a stock as it denotes the residual value if the company went bankrupt today. A higher P/B ratio than 1 denotes that the share price is higher than what the company’s assed would be sold for. The difference indicates what investors think about the future growth potential of the company.

What is the right price to buy?

The thing with fundamental stocks analysis is that in the long run the stock price will be reflected through its fundamental true value. However in the short- term the stock price of a company might go in the wrong direction. This because that there are still factors that can have influence such as news releases and changes in the future outlook of the company. Trends, investors emotions also effects the short term price fluctuations which results that the current share price is different from its true value.

What is the best way to make money with fundamental stocks analysis?

Longterm

If you are using the fundamental analysis on the right way you can make a lot of profit in the long term. For example in the article I wrote about Starbucks of why I invested it for long term was based on based on the fundamental analysis on shares/stocks. However for entering the buying price I used the technical analyses. I have bought the shares in 2014 and currently my return on investment is over 70%.

Short term 

Not many knows this but you can make a lot of money on short term with using fundamental analysis stocks especially when you are going short or when a company seems to be hit by bad news that barely effects the company revenue. For example if you that something has changed in the fundamental analysis stocks that can have influence on the companies revenue, then the first thing you need to do is check the technical analysis to see what the current price trend is of that stock. Then check if the stock price is near support level or the resistance level. A change in the fundamental analysis stocks will break many support levels or  many resistance levels.

 

The best way to make money from stocks in my experience is too use a combination of fundamental stocks analysis with technical analysis for entry and exiting. The fundamental stocks analysis is best use to determine why the stock should get more or less value in the future. And the technical analysis is best to use for understanding the price movement( that is based on the past) to determine whether it is a good time to buy or sell the stock for a certain price.

trading paypal ipo

PayPal IPO gives new investment opportunity

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Today is the  PayPal IPO. After  thirteen years being with Ebay, Paypal is now a separate company on the stock exchange. And that is good news for us investors and traders. If you are interested in investing in Paypal then you must read this article. In this article you will get to know what the business model is from Paypal and what the potential earnings can be.

Paypal IPO : why?

Why did Ebay and Paypal seperated from each other? The reason why they have separated is because the mobile payment market is showing big promises as the e-commerce market keeps becoming bigger and bigger. And more and more big tech companies like Apple , Amazone and Google have created their own mobile payment system in order to benefit from the growth of mobile- and on-line payment market. If Paypal stay with Ebay they will be limited in teaming up with other e-commerce websites. (as they see Ebay as their rival) With Ebay gone now  it will be interesting to see on how the new income stream of Paypal will look like. With the extra cash that PayPal IPO gives it will be interesting to see of what kind of companies PayPal will acquire.

PayPal Business Model

Lets take a look on how PayPal earns their money. PayPal generates revenues from fees charged to consumers and merchants for different payment-related services. PayPal allows consumers to transfer funds to merchants in a secure manner through the PayPal digital wallet. The cool thing about the Paypal Digital Wallet is that it not includes internal resources such as the PayPal account balance and PayPal credit account but they also include external resources such as bank transfers or credit and debit cards.  And one other thing PayPal does not charge consumers for funding or withdrawing funds  but they only charge fees when consumers are lending money  by  the PayPal Credit.

Most of PayPal’s revenues are generated from transaction fees that is charged to merchants. The fee percentage vary from 2.2% + $0.3 per transaction for eligible merchants to 3.9% + a fixed fee based on currency received for international fees. With a other service PayPal Here Paypal charges a transaction fee of 3.5% of the transaction value and offers a free point-of-sale station for small businesses to process credit/debit cards in their stores.

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PayPal Growth

 trading paypal ipo

trading paypal ipo

As you can see in the graph above PayPal has been growing very strongly. In the first quarter of 2010, PayPal processed $21.34 billion in payments. By the fourth quarter of 2012, this amount grew to $41.47 billion. In the first quarter of 2015, the amount of payments processed grew to $61.41 billion. This represents nearly 300% growth in payments processed since 2010. This number is likely to grow in the future as PayPal expands its mobile payments business. PayPal processes approximately 30% of its payments on mobile devices, up from merely 1% in 2010. With these good numbers it makes it very interesting for investors to invest in the PayPal IPO.

 Conclusions

The long-awaited PayPal IPO is expected has finally taken place. With the PayPal’s impressive TPV and net revenue growth rates on top of the promising expansion potential it makes the PayPal stock a very attractive growth investment. Without the restrictions of Ebay Paypal can focus on offering their services to the competition of Ebay as well. So there is a very good chance that Paypal can grow more in value over time. The first few weeks could be very volatile , so short term traders can benefit nicely from it.

Starbucks shares : Good Longterm investment or not?

Starbucks shares: A good long-term investment?

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Starbucks is one the company shares that I have in my own portfolio. I have bought the shares in 2014 for a price of 64 dollar per share. And then in April 2015 Starbucks did a stock split at a stock price of $95.23. So instead of having one Starbucks stock I have now two Starbucks shares. At the moment of writing this blog the Starbucks share has a current value of $52 dollar. So my return is pretty nice so far. My plan for the Starbucks shares is really simple: buy and hold. In this blog you will read my analysis that I have done before I started to invest in Starbucks shares.

 

Starbucks Shares Internal Analysis

The first thing that I do when I look for a company to invest in is to look at their history. Who are the founder(s) and are they still active in the company? Then I look at the management team and their skills on executing the companies plan.

You can judge the skill of the CEO and his management team by checking out the company quarterly results. A good CEO and a good management team has a quarterly results that often meets the expectations of analysts. A super good CEO and a super good management team often delivers quarterly results that surpass the expectations of the analysts and their shareholders. And my dear friend Starbucks has that super good CEO and a super good management team. For this year 2015 their first quarterly results and second quarterly results already surpass the expectations of most analysts.

 

On 23th April 2015 Starbucks announced record revenue of 4.6 Billion dollars!

When companies produce those kinds of results then you know your investment will be profitable for sure.

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Starbucks Shares External Analysis

Your successful investment doesn’t rely only on the internal analysis of company but also on the external analysis. How does the company attain new customers and retaining them? How does the company perform compare to his competitors? How does the company deals with threats?

Let’s answer these questions.

  1. How does the company attain new customers and retaining them?

Starbucks gets most of their new customers by opening more stores worldwide. In the second quarter of 2015 Starbucks have opened 210 new stores worldwide. Another way of how Starbucks attracts new customer is by selling their products not only online but also in supermarkets.

  1. How does Starbucks retain their customers?

Starbucks offers good products that meet the needs of their customers and they also provide good services to their customers through their Barista’s. Believe it or not Starbucks even has membership offers for their customers. Their membership program My Starbucks Reward has been so successful that in the second quarter 2015 1.3 million new members have signed up!

Starbucks now has over 10 million members in their membership program. Can you imagine a membership for coffee? Well Starbucks have pulled that off and not only that more members are signing up everyday.

  1. How does the company perform compared to his competitors?

Starbucks is beating their competitors; almost in every market Starbuck is the market leader.

  1. How do Starbucks deals with threats?

In my opinion Starbucks have been dealing with threats quite well I believe. For example last year in 2014, there was a commotion that Starbucks coffee was more expensive in China then in the US. The Chinese consumers were not happy about that and some of them threaten to boycott Starbucks. As a result of that commotion Starbucks shares began to drop in price at the stock market. Just in a few days Starbucks fixed the commotion by showing the Chinese consumers that the cost price for Starbucks was a lot higher in China then in the US. And so price of the Starbucks shares went up again

 

Conclusion

As long Starbucks keeps doing well in my analysis then there is no reason for me to sell the Starbucks shares only to buy more. For short term there a good possibilities to make money from Starbucks as there will be always fluctuations. Make sure to benefit from those fluctuations

 

 

 

online stocks trading profit

Online Stocks Trading in CTRIP: 1019 euro Profit

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By trading stocks online in a smart way, we made 1019 euro profit yesterday. In this article we will introduce you to trading smart in stocks by explaining it with a real example.  After reading this article you can start trading too.

Online stocks trading: how did we make  a profit?

Trading in CFD is not only about luck. Using a strategy would up your chances by a lot to profit. Yesterday we found a good stock to trade: CTRIP, we opened a buy position (long) at stock price 65.70 and closed it at price 74.34, which made us a profit of 1019 euro with 400 euro. So how did we do this?

CTRIP1

online stocks trading profit

Step 1. Find a reason to trade

The first and most important step in online stocks trading is to find yourself a motive to trade. So why did we choose CTRIP? First of all, we knew that it’s quarterly report was going to be released and whenever news like that comes out, a stock has super high volatility. We also found out that this news was going to be positive. How? We read about the company, we did a simple Google search. CTRIP is a Chinese online travel agency for booking flights, hotels and trains. So we found out that CTRIP is a online technology company and by watching the economic news we know that technology companies are doing well in these times. We then went to the investors page of the company (every stock company has one) to read the latest news and the previous quarterly report and did a quick analysis. All was positive. This has made us decide to open a buy (long) position on CTRIP, because we expected that the newest quarterly report would also be positive. This means we think that the stock price will increase after report release.

Trading with positive or negative news is what you call ‘Fundamental Analysis‘. Read more about how to use fundamental analysis to profit at this page.

 

Step 2. Opening and closing a position

After reading about the company we also found out when this report was going to come out. It turns out that it would come out after-market. This means after market close. In the online stocks trading world observation is one of the most important thing that all traders must do before entering the market. So we decided to watch the position all day and find the perfect time to open a buy position. We decided to open a buy position right before market close with 400 euro when the stock price was at a low price. We deposited the money, not more and not less, because we don’t want to lose more than we deposited.

After market close the news of the quarterly report came out and it turned out to be, like expected, positive. During the night we could see that the after market price was rising over 10%. This means a big win! At market open, the next day, the price rose around 13%, we decided to wait till market open and close the position as quickly as possible, because whenever a price is rising that much there could be a big sell off, which results in stock price decrease. So after the market opened, we closed the position immediately to lock the profit and gained ourselves 1019 euro profit.

CTRIP1

online stocks trading profit

 

CFD’s: Trade with a small deposit like a big trader

How did we make so much money with only 400 euro in online stocks trading? Well, we traded in CFD stocks, which gave us a leverage of 1:20. With leverage you can trade with a small deposit as a big trader. This meant for us: trading with 400 euro was actually worth 400 * 20 = 8000 euros. So we could trade 8000 euro worth of stocks with only 400 euro, which means we can profit 20 times more than our deposit, but we cannot lose more than our deposit. Which is awesome, but only when you use the right strategy.

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Plus500: Trading in CFD’s with a leverage of 1:20. Open a free account here.

 

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Markets.com: Trading in CFD’s with a leverage up to 1:20. Open a free account here.

 

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Avatrade.com: Trading in CFD’s stocks with a leverage of 1:10. Open a free account here.

 

Step 3. Evaluate the result

In the online stocks trading world it is important to evaluate your trade after closing a position. Write it down in your plan, tell the document what you did and why you did it, because that is the only way to learn from your profits and also mistakes. This way you can adjust your strategy until you find one that fits you the best.

 

So in short…

 

Guide-to-profit

online stocks trading profit

 

Alibaba stock: Good or no good?

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After their IPO on 19th September 2014 the price of Alibaba stock was started at $92,30. And reached the highest price of $120 on the 14th of November 2014. From there the stock price of Alibaba declined to $82,15 today 21th of April when writing this article.

 

What causes the declining?

Well since Alibaba’s highest pike on the 14th of November, the company have been receiving critics from Chinese regulators on their e-commerce activities, forecasts that missed estimates and Alibaba is also currently facing slow growth in sales. And don’t forget the Chinese e-commerce market is growing that fast as many are expecting it.

 

What to do now?

Alibaba is still facing many challenges; they are still testing the waters of the international markets. Jack Ma announce a while back that Alibaba is going to focus a lot more on making money international then only on China. In the long term might succeed in this but in the short term its going to be difficult. Having Amazon as a competitor…

On the other hand Alibaba profits are still rising and sales are still good despite it didn’t met the expectations of many analysts. And Alibaba is making big investments in small tech us companies that could give Alibaba a good return on their investment. One the start up company that Alibaba have invested in is SnapChat.

We at TradeAndInvest101.com are thinking on holding Alibaba stocks with put options. We might go in the swing trade with CFD’s on Alibaba stocks.

Alibaba stock Price Movement 21-04-2015

As you can see from the screenshot. From march till now the Alibaba stock price movement has been and still is in a indecisive trend. You might have notice the double inside bar which indicates that the indecisive trend will continue. On 7th may 2015  Alibaba company will  announce their first quarter results. We think that day is the day that might end the indecisive trend of Alibaba stock price movement. If the results are good and Alibaba stock price close above 85 dollars we might get a uptrend of Alibaba. And if the results are bad and the stock price of Alibaba closes below 80 dollars we might get a downtrend of Alibaba.