How to choose stocks?

Choose a good stock : Fundamental

Buy the stock at a good price : Technical
Diversification

1 Fundamentally:
As a consumer
As an analyst : analyse companies numbers

2 Technically:
Analyze charts

3 Diversification
 PE and EPS

The stock price is the function of its earning or profits.

Higher the earning or profits, the better.

Basic EPS = (Net profit - Preferred Dividends) / No. of outstanding shares

P/E:
You get to know how much price you are ready to pay per Re. 1/- earning for a share.
You get to know which company is better valued

P/E = Price of the stock / EPS

How to find the best company in valuation?

1 Compare with P/E of peer companies of the same sector. Never compare with companies of oter sector.
2 Compare with sector P/E

Points to note while finding correct valuation of a company?

1 P/E Ratio (should be less than sector and peers)
2 Present and Past growth of at least 3 years. (should be high)
3 Future growth potential(should be clear)
 Face Value, Book Value, Market Value & Market Cap

1) Face Value is the price of the share which comes into existence with the company and is incorporated on the certificates.
FV does not change during its lifetime except during share splits
Face Value = Capital raised by promoters / No. of outstanding shares.

2) Book Value per share is the total equity with the company.
BV per share = (Assets - Liabilities) / No. of outstanding shares
BV per share = (ESC + Reserves) /No. of outstanding shares

3) Market value (MV) = LTP X No. of outstanding shares

MV can be more or less than its BV

Why to people pay more than BV ?

Future growth potential
Perception of company is good
Management and leadership is trustworthy
Business model is unique ( monopolistic)

* COMPARE MARKET PRICE AND BV on moneycontrol app to understand the fundamentals of the company and premium v

Pro tips:
For long term, invest in asset light model companies
The value of depreciation of asset is less
Changes is inventory is less frequent
Asset light businesses have higher P/BV ratio
Eg: Software, Marketing, Digital marketing
TCS, HUL, Info Edge
orporated on the certificates.

of the company and premium valuation

 PEG Ratio

It does not mean that a company with higher P/E is not good.

PEG Ratio is P/E Ratio + Growth rate

PEG Ratio = P/E ratio / EPS Growth rate

PEG < 1 Undervalued, growth is more and better

PEG = 1 Fairly valued
PEG > 2 Overvalued (strong SELL)
PEG < 0.5 Cheaper ( strong BUY)

* Compare the growth rate % with the P/E

* Check PE ratio and EPS growth % in tickertape in growth view.
* Take data of past 2-3 years for real value of PEG ratio
ROE & ROCE