What Are the Key Performance Indicators for Researching Stocks?

by Nicole Crawford

Thorough research will not only help you select the best stocks, but it will also clue you in to the overall health and direction of the market. If choosing several stocks sounds like a daunting task, consider investing in mutual funds, which include a variety of companies and can be tailored to suit your investing needs.

Market Research

Before you invest in specific stocks, research the current state of the market by analyzing data that measures market breadth. Market breadth compares the number of stocks that decline to the number of stocks that advance on a daily basis and serves as a general indicator of stock market health. A market that has more advances than declines is said to have good breadth. According to the book "Stock Investing for Everyone," a long run of negative breadth often means that a positive turn might be coming.

Company Research

Once you have a feel for the direction of the market, do a thorough analysis of the companies in which you plan to invest. Scottrade recommends using Porter's 5 Forces to analyze the strengths and weaknesses of a particular industry. The five forces that shape an industry, according to the model, are competition, the possibility for new entrants into the industry, power of suppliers, power of customers and the threat of products that can replace the industry. Use Porter's 5 Forces to analyze and compare each of the companies for which you purchase stocks to determine whether the investment is a lucrative one.

Fundamental Analysis

Fundamental analysis provides a picture of a specific stock's most basic data, such as return on assets, cash flow, capital management, revenue and debt profile. As noted by Investopedia, fundamental analysis can be either qualitative or quantitative. Qualitative fundamental analysis is concerned with numerical data about a given company, whereas quantitative analysis deals with less-calculable factors, including company recognition, any patents the company may have and the quality of company executives and board members.

Technical Analysis

Technical analysis measures a specific stock's performance in relation to the overall performance of the market. Technical analysts use charts to graph these relations, which can be quite complex. As noted by Stock Charts, analysts usually start by analyzing the broader market, then move on to sectors and finally conclude by analyzing specific stocks. Technical analysis is a good way to predict the future performance of stocks and also familiarize yourself with a company's past performance.

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