Stock Analyzer

What Is Stock Analysis?

Stock analysis is the process of evaluating a company's financial health, growth prospects, and price behaviour to make informed investment decisions. Professional investors combine two broad approaches: fundamental analysis (what a business is worth) and technical analysis (what price and volume data tell us about supply and demand). Beginners often start with fundamental metrics and layer in technical signals as they gain experience.

Fundamental Analysis

Fundamental analysis asks: what is this business actually worth? It examines financial statements, competitive advantages (moats), management quality, industry dynamics, and macroeconomic conditions. Key metrics include revenue growth, profit margins, return on equity (ROE), debt levels, and free cash flow generation. The goal is to identify companies trading at a discount to their intrinsic value.

The P/E ratio is one of the most widely used valuation metrics. It compares price to earnings — a high P/E may mean the market expects strong growth, while a low P/E may indicate pessimism or value. EPS (earnings per share) reveals underlying profitability per share and should grow consistently for a healthy business. Dividend yield shows income return relative to price — important for income-focused investors.

Technical Analysis

Technical analysis studies historical price and volume data to identify patterns and trends. Unlike fundamental analysis, it makes no judgment about what a company is intrinsically worth — it simply asks: where are buyers and sellers positioned, and which direction is the trend?

Moving averages smooth out price noise to reveal the underlying trend. The 200-day SMA is particularly important — stocks above it are generally considered in long-term uptrends. Momentum oscillators like RSI measure whether a stock is moving too fast in one direction and may be due for a reversal. MACD tracks the relationship between two exponential moving averages to identify trend direction and momentum shifts.

How to Use the P/E Ratio

Never evaluate a P/E ratio in isolation. A P/E of 30 might be cheap for a high-growth software company (where peers trade at 60x) but expensive for a slow-growing utility (where peers trade at 12x). Always compare the P/E to: the company's own historical P/E range, the sector average, and the broader market P/E.

Also watch for earnings quality. If EPS is inflated by one-time items (asset sales, tax benefits) or depressed by temporary charges, the reported P/E can be misleading. Analysts often prefer "normalised" or "forward" P/E ratios based on estimated future earnings.

Understanding RSI

The Relative Strength Index (RSI) measures the velocity of price changes over the past 14 days on a 0–100 scale. Above 70: traditionally overbought — the stock may have risen too far, too fast. Below 30: oversold — the stock may have fallen excessively. Between 40–60: neutral momentum.

Important caveat: RSI signals are more reliable in ranging markets than in strong trends. In a powerful uptrend, RSI can stay above 70 for extended periods. Always combine RSI with price action and other indicators rather than acting on it alone.

Support and Resistance Levels

Support and resistance are price levels where the stock has historically experienced significant buying or selling. Support acts as a "floor" — when price approaches it, buyers often step in and push prices back up. Resistance acts as a "ceiling" — sellers become more active, limiting further advances. These levels become especially significant when they align with round numbers, previous highs/lows, or moving averages.

Common Beginner Mistakes