How to Evaluate Alternative Stock Investments

by Geri Terzo

Alternative stock investments typically include renewable energy companies, such as those developing products or services in the solar power and wind energy sectors. Examining an alternative energy company's earnings and balance sheet may provide useful insights into the level of risk a stock investment may entail. A review of historical price activity can give investors a sense of an alternative stock's volatility. Accessing financial statements that are readily available online also supports the evaluation process.

Research

Call the alternative energy company's Investor Relations department and request information about the firm's historical stock price performance. Review the material provided for insights into the company's earnings, activities and long-term prospects.

Evaluate the historical trading range of a stock from one date to another to determine if the stock has advanced or declined over time. Create charts for historical stock performance over several different time intervals, such as three months, six months and one year. Charts can be created on a spreadsheet.

Ask the representative in the company's Investor Relations department why the stock price experienced significant volatility during a particular period, including substantial gains or losses, if applicable. Request access to transcripts from previous earnings calls which may provide clues or detailed explanations.

Review

Read financial statements for the company being evaluated, including the firm's balance sheet. Financial documents are filed with regulatory agencies such as the U.S. Securities and Exchange Commission. These documents are available to the public.

Compare profits from one quarter or year over the same period in the previous year. Alternative stocks are part of a nascent industry and may not yet be profitable. Read through the company's financial statements for an indication of when the company expects to reach profitability.

Determine the amount of equity and debt an alternative company has on its books. This information can be found on a balance sheet.

Perform a calculation to determine a company's debt-to-equity ratio. Divide long-term debt by all of the company's equity. Multiple the result by 100 to find the debt-to-equity ratio. According to Forbes, a result below 50 percent is desirable.

Observe

Research whether any government incentive programs are available in the sector in which an alternative stock trades. Call your elected representative to explore current policies and tax credits offered to companies in the alternative energy industry. Such incentives can increase investor interest in the sector and give stocks a positive boost. .

Open a brokerage account to gain access to industry research related to the alternative energy sector. Some brokers provide independent research on industry trends and companies to keep you informed about the latest incentives and headlines.

Follow the price of traditional sources of energy, including oil and gas. According to a 2011 article published on the Investor Place website, higher oil prices make the case for alternative energy more compelling, which can have a positive affect on alternative stocks.

Warning

  • When high oil prices retreat to lower levels, alternative energy stock prices tend to fall.

Items you will need

  • Computer
  • Brokerage account
  • Spreadsheet template

About the Author

Geri Terzo is a business writer with more than 15 years of experience on Wall Street. Throughout her career, she has contributed to the two major cable business networks in segment production and chief-booking capacities and has reported for several major trade publications including "IDD Magazine," "Infrastructure Investor" and MandateWire of the "Financial Times." She works as a journalist who has contributed to The Motley Fool and InvestorPlace. Terzo is a graduate of Campbell University, where she earned a Bachelor of Arts in mass communication.

Photo Credits

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