How to research a stock before you buy

Do you want to increase your chances of success in stock trading? Then, research, research and more research. Here are 4 ways to research a stock b

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Do you want to increase your chances of success in stock trading? Then, research, research and more research. Here are 4 ways to research a stock before you buy.

Stock trading research and analysis


A professional trader like Gorilla Trades will tell you that researching a stock before buying is the key to making good investment decisions. So yes, researching stocks beforehand can mean the difference between making losses and making big gains in the stock market.

You do not have to be an expert in trading to make profitable investments. But, with just enough research and knowledge, you can buy the best stocks and embark on a valuable investment journey; it is the excellent power of research.

But what does stock research entail? Consider the following four practical steps on how to research a stock before you buy:

1. Make use of stock research material

There is a lot of research material provided by companies that provide sufficient knowledge about the best investments. Before deciding what investment to make, start by doing quantitative research. This research involves researching the finances of the company.

For example, you could review various documents that the Exchange Commission and U.S. securities require companies to complete. Two examples of such informative documents include;

  • Form 10-K: It is an annual company report that contains a detailed balance sheet, the company’s income, expenses and details on how money is managed.
  • Form 10-V: This document provides a quarterly update of all the financial operations and results of the company.

Even if you are not the type to go through detailed company documents, you can also find useful information on your brokerage firm’s website. Alternatively, you can use the best investment newsletters or search for highlights on critical financial relationships on major news sites. With this information you can then compare the performance of different companies and decide in which firm it is worth investing in.

2. Narrow your focus

Financial reports and other company documents provide a wealth of information; too much information can get you stuck. Therefore, rather than going through all that boring information, you need to narrow down your focus. After all, only specific aspects of the reports can help you determine the best investments.

To understand the operation of a company and whether it will be an ideal brokerage firm, limit your focus to the following aspects:

  • Income: This is the most important thing that is included in a company’s income statement. It shows the total amount of money (gross salary) that the firm made during a specific period. Income is usually divided into two types: “non-operating income” and “operating income.” While the non-operating income is generated from business activities that are done only once, operating income comes from the company’s core business, making it the most important source of research.
  • Net income: A company’s net income is usually listed at the bottom of a company’s income statement. It shows the firm’s amount of money after all the taxes, expenses and depreciation of the overall income have been removed. In other words, it refers to the total income left over once all the cost of living and taxes have been paid.

Stock trading

3. Do a qualitative research

Quantitative research reveals the financial details of a company. On the other hand, qualitative research provides much more detailed information than the former. It provides technicolor details that demonstrate a more realistic picture of a company’s work, prospects, and operations.

Remember, buying shares in a company is similar to buying a personal stake in the firm. So do not just buy shares in a company simply because you expect them to rise after a while. Instead, you should always buy shares because you want to own the company.

To do thorough qualitative research on a prospective business, consider how the company makes money. You need to choose a company with a clear and transparent way of making money. Also consider the quality of the management team. I mean, a firm is just as good as the skill and ability of the management team to steer it in the right direction.

Furthermore, consider the competitive advantage of the company. What aspects of the firm are difficult for other similar companies to obscure or emulate? The more unique a company is, the harder it will be for other firms to emulate it, and the stronger its competitive advantage will be. If you look at these aspects of qualitative research, you will be able to make the best decision about which brokerage firms to invest in.

4. Put your research in context

Before deciding which stock to buy, understand all the factors and criteria that will make your prospective company worth investing in the long run. And to do that, you need to put your research into context.

First look at the historical data of the company. For example, how has the company responded to various challenges in recent years, remained resilient during difficult times and improved its performance over time? Also use the best investment newsletters to compare key ratios of different companies within the same field line. You will have gathered enough information to help you make the best investment decisions when you do.


Stock trading is not just like any other type of business you can just jump on; you must first do thorough research. So if you want to invest with the best company and stocks, apply the above 4 ways how to research a stock before you buy it.


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