7 Metrics Value Investors Use To Assess Stocks In 2021

While having an advanced degree in Econometrics or Mathematics is not a prerequisite to successfully investing in the stock market, value investors who understand some essential industry metrics will better inform your decision-making process.

When I first started investing (many years ago), I would often be put off by confusing terminology and statistics about stocks. And would base my portfolio arrangement on consensus, web research, word of mouth, and sometimes even a little guesswork.

And while no one single strategy can get defined as the definitive answer to making healthy returns: an understanding of the available data points can help you validate stocks you may have found along whatever research path you have embarked.

Let's dive into some of the most common metrics in which value investors should at least have a basic understanding. Then, armed with this knowledge, hopefully, the next basket of stocks you pick will have a more grounded fundamental basis for their selection: and go on to be big winners.

person using macbook pro on black table

Image Source: Unsplash

What Are Stock Metrics

Stock metrics get used to assess, compare, and track the performance of stocks. These metrics are known as a method of quantitative assessment. And, both value investors and analysts use them to build a picture of how a stock is performing. Using this data, the stocks can be reviewed regularly to monitor their performance and plan future investment strategies.

A wide variety of stock metrics can be used to great effect when choosing an investment strategy. These investment metrics have been developed over time to maximize efficacy and to meet industry standards.

Why Should Value Investors Care About Metrics

Stock metrics can be an essential tool for picking which stocks to invest in. Of course, the ratios will not mean every investment is 100% safe and profitable, but using the investment metrics can help see if a stock is trading at a discount or a premium according to its value based on growth, profitability, and balance sheet.

In most cases, it's advisable to examine two or three metrics to see how a company compares against its competitors. These metrics also demonstrate if the company is trading above or below its fair value.

For example, using stock metrics can help find undervalued stocks. However, the market reaction means that stock prices do not always correspond with a company's future performance. 

As an investor, this means you can profit from these opportunities by using various investment metrics to identity valuable investment opportunities.

The various investment metrics do not guarantee success but provide you with the knowledge of whether a stock is likely to give you a return. 

Expensive stocks could take 2 or 3 years to appreciate further. Any stocks trading lower than a company's fair value are probably lower for a reason - you must know why the stock gets discounted and what is needed for the price to appreciate before you can judge when the investment is worth it or not.

7 Investment Metrics To Inform Stock Selection

Stocks can be analyzed using a variety of measures. The seven metrics listed here are some of the most popular stock metrics you can use to find outstanding investment opportunities.

1 2 3 4
View single page >> |

This article originally appeared on The Financially Independent Millennial and ...

more
How did you like this article? Let us know so we can better customize your reading experience.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.