What is Stock Analysis?

Manish Kothari
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isVerifiedExpertAuthor is a Zfunds Verified Expert
Manish Kothari


Stock analysis is the process of individual and institutional investors evaluating a specific stock, financial instrument, or security to make informed buying and selling decisions. It entails researching the company and determining its long term growth potential based on current and past market performance. 

When conducting stock analysis, several factors are considered to predict a company’s earning capacity and stock price movement in the coming future. Investors can then utilise this knowledge to develop a trading strategy for their portfolio and select appropriate stocks. This phenomenon is also known as market or equity analysis that can be performed using either technical or fundamental stock analysis tools or both.


Stock analysis helps investors and traders assess the stock market situation in a way that assists them to make maximum profit. Before investing in a stock, they need to perform their due diligence and learn what makes an entity unique and why they should invest in the same. It is never a good idea to buy stocks because everyone else is buying it or someone told. It is where stock analysis comes into picture. 

Analysis can be an investor's best assistance while venturing into the stock market. The company’s present and past financial statements and their comparison with competitors can tell a lot about how well the company is performing. Metrics like operating profit margin can also assist analysts estimate the revenue, operating income, operating expense among others. 

Investment banks and research entities typically use similar stock analysis tools. Although individual investors prefer to do it on their own hence they may not be able to go too deep. In this case, they can monitor stock trading platforms and other resources to study factors like potential revenue, earnings and price targets. Therefore, it will help them make close to accurate recommendations or predictions about trading or holding stocks.

The two primary methods to stock analysis includes:

  1. Technical Analysis 
  2. Fundamental Analysis 

Both these methods are vital to gain a full fledged undertaking of the stock including its growth and value potential. They can be either performed in tandem or separately. 


Traders and investors perform technical analysis by looking at past volume trends and price, market forces variable among others to determine where the stock price can head in near future. It is a method of forecasting stock price movements using a number of analysis resources and tools. The analysis uses indicators like oscillators and charts to predict future trends. It benefits traders who seek profits from short term price fluctuations. 


Investors apply fundamental analysis when going through and reviewing a company’s financial positioning such as evaluating its balance sheet, cash flows and income statement. The stock analysis report can reveal a company’s operating profits, expenses and distribution of the revenue. Moreover, investors prepare ratios and valuation metrics to determine the potential value of the entity. It involves looking into the company’s financial records, market share, stock price and consolidated assets. In this way, it assists investors to make long term investment decisions.

To complete a full fledged fundamental analysis of a stock, industry, company, or market, investors compare the current financials with the previous year. These financial statements are made public by the Securities and Exchange Board of India (SEBI) and provide answers to the queries like - Is the company growing? Is it profitable? Is it sustainable? Etc.


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