Judging the Correctness of Share Prices Before Buying: 4 Factors You Need to Consider

You need an agile mind capable of logical analysis of facts and figures if you want to do well in the stock market. The agility helps you to stay aware of everything happening in the market so that you are in the thick of things always.

By being there real time, you always have a finger on the nerves of investors and can not only gauge the market movements closely but also understand the possible causes behind it. It helps you to stay cool and composed even in the face of adversities as you gain the strength of working out suitable strategies to overcome any setback that you may encounter.

Live stock prices in high street

Losses are part of the stock market game, but instead of cowing down to it, you must have the resilience to fight back and turn the tables in your favour once again. So, to minimize your risks, what are the factors you need to consider when it comes to analyzing share prices?

Factor #1: Investors are being cautious of stock markets

Any new investor would have reservations about the stock market and hesitate to invest because it is not easy to buy stocks.

Having money is not enough to buy stocks, as you have to know the prospects of investing in the stocks. Your ability to see the future of the stocks counts a lot when buying. After all, you want to make money from the investment within some specified time and unless you have enough confidence in the stocks to perform well, why should you run after it?

Preparing well by knowing the stock market operations helps in making things easy when buying stocks. And buying is not the end in itself because you have to sell the stocks at some higher price to make profits. You should know the factors to consider when deciding whether to invest in some stocks. Things will become clearer as you go through this article that provides insight about what you must consider before investing in some company stocks.

Factor #2: The stock prices

To start analyzing stock prices, you need to pick one or two to get started, and start digging deeper on the historical data. For example, if you are interested in investing in Woolworths Group of Australia, then you have to take a hard look at the WOW share price. Price is the most critical factor to consider before investing in shares. The same applies to investing in other asset classes like real estate, bonds, commodity or mutual fund.

Since the price forms the baseline of your investment, it carries hints about the potential of the stocks on which you would like to build your fortune. Whether you are ‘betting’ on a winning horse or a losing one would become clear by analysing the price of stocks.

The target of any investor should be to pay the best price when buying shares so that it assures good value for money. In the share market parlance, it means that you have to buy shares at the opportune moment when the price is at a low level with no chances of falling further very soon. It should not happen that as soon as you complete the purchase, the next day you find the price sliding down further that would leave you regretting your decision. You have to strike the deal at the right time.

Studying the financial markets

Factor #3: The true value of the asset

When you move around the share market, you would hear about the intrinsic value of shares that investors consider quite crucial for taking decisions. What is the intrinsic value? In simple words, it is the inherent value of the asset, which is its true value. The basic net worth of the company denotes its true value and to ascertain it you must subtract the cumulative liabilities of the company from the total assets. By looking at the net worth, you can gauge the financial health of the company.

The higher the net worth of any company as compared to its market value, higher is its potential for good performance. It is a direct reflection of the earning power of the company. The share price determines the market value of the company. If you find the net worth less than the market value, then it is better not to invest in the company, as you cannot depend on the capabilities of the assets.

Factor #4: Market capitalisation or Enterprise value

Market capitalisation is another factor that many investors use for determining how valuable any company is. Although the term might appear a bit technical, in common parlance, it means the total value of outstanding shares on a company. The figure reflects the value of the company in the eyes of investors because by only looking at high share prices you would not know how big its size and the extent of interest investors have in the company. It provides a more realistic picture of the actual worth of the company.

Stock trader analyzing graph


Although you can never be sure about stocks that can often fox you by defying all calculations, the above tools would at least help to capture the company’s true health.