What Is Stock Analysis?

Stock Analysis Explained in Less Than 5 Minutes

Stock analyst looking at market data
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Stock analysis is the process of assessing equities to then make investment recommendations and/or price predictions. Stock analysis can help guide you on whether to buy, sell, or hold specific stocks. It can also help shape more specific expectations for how a company will perform and how its stock price will move.

Both institutional and individual investors can use stock analysis as part of their investment decision-making processes. Here’s what you need to know before getting started.

Definition and Examples of Stock Analysis

Stock analysis involves reviewing companies/assets to try to inform investors as to what they might expect from particular stocks.

  • Alternate name: Equity analysis

Stock analysis can fall into one of two categories, or it can be a mix of both.

Fundamental Analysis

This type of stock analysis looks at a company’s fundamentals, meaning the business and financial information that ultimately tends to affect stock prices. For example, fundamental stock analysis might include analyzing a company’s quarterly revenue growth to make predictions about whether the stock is a good investment at this time. Analysts use a company’s financial statements such as the balance sheet, income statement, statement of cash flows, and their annual filings (form 10-K) to prepare ratios and metrics for their analysis.

Technical Analysis

Stock analysis can also include technical analysis, which involves analyzing technical indicators specifically around stock trading, rather than underlying business information. For example, technical analysis could include reviewing a stock chart to determine that a particular stock typically bounces back up after falling to a certain trading price. That might then prompt some investors to buy the stock as it approaches what could be the point where it rebounds.

Different analysts and investors have varying viewpoints as to whether fundamental or technical stock analysis is the way to go, or whether there should be a combined approach. There isn’t necessarily one right way to perform stock analysis; It all depends on the investor.

Stock analysis might also apply to broader analyses of industries or the stock market as a whole. However, these types of assessments are often referred to separately as sector analysis and stock market analysis, respectively.

How Does Stock Analysis Work?

With so many companies available to invest in, how do you know whether to put your money in one stock vs. another? Should you invest in Apple or Microsoft? Amazon or Google? GE or GM? And what about smaller companies that you’re unfamiliar with in your personal life? That’s where stock analysis comes into play.

Technical analysis is generally only used by stock traders who buy and sell based on short-term price movements.

Many financial companies, such as investment banks or research companies, employ analysts to study specific companies or other tradeable securities like investment funds. Stock analysts might provide recommendations directly to their firm’s clients, or they might be available publicly.

Stock analysis is often expressed as ratings to either buy, sell, or hold the stock. Stock analysis may also include price targets, such as when an analyst predicts what a particular company's stock price will be within the next year. Plus, stock analysis can include detailed data, such as expectations around future revenue and earnings.

Depending on where you’re looking, you might see an average of predictions and recommendations from multiple stock analysts, or you might see what one particular stock analyst thinks.

What Stock Analysis Means for Individual Investors

Stock trading platforms and investment information sites often display stock analysis from analyst reports for individual investors to use. So, if you’re interested in investing in a particular company, you may want to see if stock analysis is available for that company to help inform your decision.

You can find stock analyses in several places, including websites that display stock quotes and other online stock trading sites. Look for sections labeled “Stock Analysis,” “Analyst Ratings,” “Research,” or similar terms. If you still having trouble locating this information, you may want to try searching for a particular company's stock analysis on your search engine.

Compare one company's stock’s performance with the stock performance of another in the same industry and with a similar financial structure to get a better idea of how the first company's stock is performing.

Some individual investors may also decide to do their own stock analysis, but that can be difficult to do. Significant training and experience are needed to do fundamental analysis and technical analysis effectively.

That said, there can be conflicts of interest among professional stock analysts when, for example, their firm has a large stake in the stock they’re analyzing. That’s why individual investors may want to review analyst reports but still come to their own conclusions—and the U.S. Securities and Exchange Commission (SEC) agrees.

“As a general matter, investors should not rely solely on an analyst's recommendation when deciding whether to buy, hold, or sell a stock,” the SEC states on its website.

Key Takeaways

  • Stock analysis involves reviewing a stock in order to make investment predictions or recommendations.
  • Stock analysis can be based on either fundamental or technical analysis or both.
  • Individual investors can review publicly available stock analyses from professionals, but they shouldn’t necessarily rely entirely on these analysts' opinions or recommendations.