How to look at a stock profile

Investing comes with its own set of lingo. Nailing it early means no one can ever throw out the jargon to intimidate you. We picked out the most important ones for you here so no mansplaining is in your future (well, at least on this topic).

Q: What are the key words to notice when it comes to valuing a company’s stock?

52 Week High/Low:

The highest and lowest price a stock has traded at in the trailing 52-week period. Why 52? 52 weeks = 1 year.

💡Why it matters: It gives you an automatic timeframe and benchmark to compare the stock’s current price.

Market Capitalization (AKA “Market Cap”):

The total value of the company in dollars (as valued by investors).

Where does this number come from? All the outstanding shares (AKA shares on the market) multiplied by the current share price.

Example: A company with 10,000 shares each trading at $100 would have a market cap of $1 million.

Fun Fact: The three largest companies by market cap are currently Apple, Amazon and Microsoft. 

💡Why it matters: It’s a quick way to understand what the company is worth without digging through their financial statements. Market cap is also one way to diversify your investments when you hear people talk about spreading across “small cap”, “mid cap” and “large cap” companies.

Price to Earnings Ratio (AKA “P/E Ratio”):

Arguably the most-widely-quoted stat in relation to a company's stock performance, it shows how much investors are willing to pay for one dollar of company earnings.

It helps you see how overvalued or undervalued the stock is. It does not help you understand if the stock is “good” or “bad” per se, instead it’s a metric to understand how much investors are willing to pay (e.g. $20? $50?) to capture $1 of a company's earnings.

💡Why it matters: A high P/E could indicate that you may be overpaying for a stock relative to its earnings. Conversely, a low P/E could mean that a company is undervalued (price is low relative to its earnings).  

Pro-Tip: To sound really savvy, don’t be misled into thinking “high P/E ratio” always means overvalued. You might be willing to pay MUCH more than $1 for $1 of Amazon because investors expect high future earnings potential from all its products and services.

Earnings-Per-Share Ratio (AKA “EPS”):

The other most-widely-quoted stat about a stock’s performance shows you how much the company earns for every share that’s traded.

It’s calculated by dividing the company’s net profit by the number of shares on the market. If you see a trend of higher EPS, it means the company is making more profit for each share they offer.

💡Why it matters: Investors are willing to pay a higher price for the stock of a company with high EPS ratio because they want to invest in companies that have higher profits.

Beta:

Measures how closely the stock correlates with the overall market. If a stock’s beta is 1 then it follows the market exactly.

Example: SPY, the S&P500 ETF, has a beta of 1 with the S&P500 because — you guessed it — it tracks the S&P500 exactly. Beta above 1 means a riskier investment because of that extra volatility.

💡Why it matters: Beta is a way to assess the riskiness of a potential investment. However, beta isn’t always a great way to understand what the volatility will be in the long term. Why? Because as we’ve seen in 2020, anything can happen. Beta is only a snapshot in time.

If you’re looking for a break from IG or Tinder, give scanning stock profiles a try! And if you see any jargon you want to get smart on, shoot us a note or DM us.