Stocks are categorized by their differing benefits, returns and risk capacity. Buying them for the first time is not an easy affair. People need guidelines on how to value and choose stocks. Many times, what you choose to buy is a reflection of who you are and what your mental processes are like.
An optimistic person is likely to go for growth stocks for example. These are investments that are likely to increase sales by at least 15% within a period of one year. Someone who has a lot of patience may choose to go for value stocks, which are believed to be able to beat all unfavorable market conditions. Well, these are just two of the three major categories that investors may choose from. The third category is that of income stocks, which is the most common among many people. Investment in this category is purely for the purpose of getting returns on the investment.
how to choose stocks pricing of stocks is a process that is mostly based on ratios. The ratios try to compare the relationship between prices of an investment and the company’s index. There are different ratios that can be used, but the most common one is the price to earning ratio. The price is divided by the return per share over a period of 12 months.
The other ratio that is used is the price to sale ratio, which is basically the price divided by the number of sales per share over a period of 12 months. The price to book ratio is also used to determine the price. It is also called the book value and puts into consideration the assets and liabilities of a company. The ratio is mostly used by value investors.