Once you have determined your goals for investing in stocks, it is time to learn the basics.
New investors can quickly become intimidated when it comes to investing in the stock market. There are many confusing words and jargon they need to learn, and there is a real risk of losing money. It’s not as hard as it may seem, though. You simply need to understand the terms to begin understanding the basics of the stock market. Below are some of the terms you should know:
P/E ratio: the P/E ration, or price-to-earnings ration, can tell you just how expensive any stock is. On the other hand, the actual price you see for a share is meaningless. The PE can tell you the price per share that is divided by the earnings-per-share. This number gives you how much investors are spending to earn a dollar in profits. PE ratio tends to stay around 15.7. This ratio can range from zero all the way up to triple digits when a company has high prices with slim profits.
Revenue growth: the total sales the company has within a given period is the revenue. It is demanded on Wall Street that any business with stock shows some revenue grow or have a plan in place to show growth in the near future. Though investors tend to prioritize profits, their profit growth tends to be volatile and can change based on a one-time event. This can make it more difficult to parse each quarter. Cost-cutting can also increase profit growth, but it isn’t in the company’s best interest for long-term growth. On the other hand, revenue growth tends to be more consistent and straightforward.
Dividend yield: many financial news sites will list the annual dividend payouts with percentages known as dividend yields. This percentage is based on the annual dividend payouts which is then divided by the price of the stock. This percentage of the value of stock is what an investor gets paid back to them yearly.
Now that you understand some of the terms used in the stock market better, you can continue to move forward and began choosing the sector you want to invest in.