3 things to first see while choosing a stock for fundamental analysis

 When choosing a stock to invest there are obviously many things to look for, but what are those essential things that you should see while shortlisting at the first sight? It is obviously impossible to fundamentally analyse every stock at the first glance and waste time. So let us have a look at how to make it simple:-

1. The market capitalization of the company:- How big company are you looking for to invest? A large cap, medium cap or small cap. Generally a large cap which means a market capitalization over 50,000-60,000 crores is safer to invest comparatively. Smaller companies obviously do give better returns but the risk is also usually that high. Therefore a large cap or a mid cap would do better while choosing the stock. The market cap shows how much the company has expanded over years and how large the company is while investing. Hence this could be set as our first and for most factor.

2. The five year graph of the company:-  Have a look at these images.

Looking at the above images which stock would a person choose. Obviously the third one could be shortlisted from the first site itself. The first and second both graphs show a positive return in 5 years. Hence both are good stocks. But the second one shows a dip in between and slow growth in between which is suddenly followed by a huge peak in the last year. This peak could be due to certain positive news in the stock. But while doing fundamental analysis should we focus only on a news and invest. No, more analysis is required. If you like such stocks due to some news that you get, than you shall first look into the other growth fundamentals of the company and future reforms that the company is planning for. But the first stock looks the most impressive. Hence such graphs could be a huge, criteria for easy shortlisting of stocks.

3. Return on equity of the stock:-  A investment in bank or fd could give us a return of almost 8-9%. So, why invest in stocks by taking risk even if prices are growing? The return on equity of year on year basis in nifty and sensex as per data shows a approximate 13-14% return. Hence I would suggest only a stock above this average a good stock. The minimum return on equity of a company should be 15% while investing in it. It would infact be more suggestible to look for stocks having above 20% return on equity.

Many factors apart from this could be considered to study a stock. But in my opinion these are the first and most important three factors, that a person must look for while choosing a stock.