How to monitor stock performance
Knowing how well your investments are doing can help you make better decisions, and also track your financial goals. If you’ve invested in stocks, there are several ways you can monitor how well your stocks are performing.
On this page we answer
- How can you tell how your stocks are performing?
- What financial indicators are used to assess stocks?
How can you tell how your stocks are performing?
There are several ways you can check how your stockStock An investment that gives you part ownership or shares in a company. Often provides voting rights in some business decisions.+ read full definition investments are doing. If you’re not sure where to start, try one or two of the strategies below that feel comfortable for you now. Then add more as you learn.
- Review your accountAccount An agreement you make with a financial institution to handle your money. You can set up an account for depositing and withdrawing, earning interest, borrowing, investing, etc.+ read full definition statements – Review all records and account statements you receive to see how your investments are doing. And keep track of the costs you’re paying. Then compare the performance of your stocks against your goals and the guidelines set out in your investment policy statement, if you have one.
- Check stock tables – You can find stock tables in the business section of most newspapers and online. Tables can give you useful information about changes in a stock’s value and trading activity.
- Compare against benchmarks – A benchmarkBenchmark A yardstick that you can use to measure the performance of an investment. Example: a stock market index may be a benchmark you can use to compare how well your own stocks are doing.+ read full definition is a market or sectorSector A part of the economy where businesses provide the same or related products or services. May also refer to a group.+ read full definition indexIndex A benchmark or yardstick that lets you measure the performance of a stock market, part of a stock market or a single investment. Examples: S&P/TSX, S&P/TSX Canadian Bond Index.+ read full definition. Examples: S&P/TSX indices. Compare a stock’s performance to an appropriate benchmark to see how it has performed compared to the market or sector in general. If a stock consistently underperforms its index, it may be a warning sign.
- Get current news on the companies you’re invested in – Read recent disclosure documents and any other timely information that comes from the company, like news releases. You can also get information from many third-party sources like newspapers, trading sites and analyst reports. Learn more about how to evaluate companies when buying stock.
- Consult your advisor – If you have an advisor, ask them to explain why prices have suddenly fallen or risen — and what that means for your stock portfolioPortfolio All the different investments that an individual or organization holds. May include stocks, bonds and mutual funds.+ read full definition.
- Follow stock marketStock market The collection of markets and exchanges where stocks, bonds and other securities are issued or traded.+ read full definition news – Are we in a bear marketBear market A weak market where stock prices fall and investor confidence fades. Often happens when an economy is in recession and unemployment is high, with rising prices.+ read full definition? A bull marketBull market A strong market where stock prices rise and investor confidence grows. Often tied to economic recovery or an economic boom, as well as investor optimism.+ read full definition? Is the market up or down in general? Stock prices are affected by what’s happening in the market, not just at an individual company. You can find lots of information at the Toronto Stock Exchange.
- Keep up with general economic news – Read the business sections of major newspapers to find out what’s happening in the economy. Are interest rates going up? What’s the inflationInflation A rise in the cost of goods and services over a set period of time. This means a dollar can buy fewer goods over time. In most cases, inflation is measured by the Consumer Price Index.+ read full definition rate? How is the Canadian dollar doing against other currencies? Learn more about how economic factors can affect stock prices.
- Use indicators to re-assess your investmentInvestment An item of value you buy to get income or to grow in value.+ read full definition decisions – There are six financial indicators you can use to assess stocks. Read more below.
What financial indicators are used to assess stocks?
Many indicators and calculations are used to assess the value and growth potential of a stock. Here are some key indicators used by investors.
- Earnings per shareEarnings per share A company’s profit divided by the number of shares.+ read full definition (EPS)
Earning per shareShare A piece of ownership in a company. A share does not give you direct control over the company’s daily operations. But it does let you get a share of profits if the company pays dividends.+ read full definition (EPS) is calculated by dividing the company’s total profit by the number of shares. It is the amount each share would get if a company paid out all its profit to its shareholders. For example, if company’s profit is $200 million and there are 10 million shares, the EPS is $20.
EPS can tell you how companies in the same industry compare. Companies that show steady, consistent earningsEarnings For companies, it’s the money they make and share with their shareholders. For investors, it’s the money they make from their investments.+ read full definition growth, year after year, will often outperform companies with volatile earnings over time.
- Price to earnings ratio (P/E)
The price to earnings ratio (P/E) can tell you whether a stock’s price is high, or low, compared to its earnings. It measures the relationship between the earnings of a company and its stock price.
The P/E ratio is calculated by dividing the current price per share of a company’s stock by the company’s earnings per share. For example, if a company’s stock currently sells for $50 per share and its earnings per share are $5m, it has a P/E ratio of 10 ($50 divided by $5).
Some investors consider a company with a high P/E to be overpriced. But sometimes a company with a high P/E today may offer higher returns, and a better P/E, in the future. How do you know? You’ll likely have to look at other indicators before you decide.
- Price to earnings ratio to growth ratio (PEG)
The price to earnings to growth ratio (PEG) helps you understand the P/E ratio a little better. It can tell you whether a stock may or may not be a good value.
The PEG is calculated by dividing the P/E ratio by the company’s projected growthProjected growth The amount that a company expects its earnings to grow by some future date.+ read full definition in earnings. For example, a stock with a P/E of 30 and projected earnings growth next year of 15% would have a PEG of 2 (30 divided by 15). A stock with a P/E of 30 but projected earnings growth of 30% will have PEG of 1 (30 divided by 30).
The lower the number, the less you have to pay to get in on the company’s expected future earnings growth.
- Price to book valueBook Value For investors, it’s what you paid for an investment. For companies, it’s the true value of everything that it owns. If the company had to close its doors and sell everything, the book value is the amount that shareholders would get (amount of net assets that the business owns).+ read full definition ratio (P/B)
The price to book value (P/B) ratio compares the value the market puts on a company with the value the company has stated in its financial books. It’s calculated by dividing the current price per share by the book value per share. The book value is the current equityEquity Two meanings: 1. The part of investment you have paid for in cash. Example: you may have equity in a home or a business. 2. Investments in the stock market. Example: equity mutual funds.+ read full definition of a company, as listed in the annual reportAnnual report A financial report that a company prepares for its shareholders each year. Includes a balance sheet, financial statement, auditor’s report, and information about the company’s operations and financial situation.+ read full definition.
Most of the time, the lower the P/B ratio is, the better. That’s because you’re paying less for more book value. If you’re looking for a well-priced stock with reasonable growth potential, you may want to use a low P/B as a tool to identify possible stock picks.
- Dividend payout ratio (DPR)Dividend payout ratio (DPR) Measures what a company pays out to investors in dividends compared to what the stock is earning. It’s calculated by dividing the annual dividends per share by the EPS.+ read full definition
The dividendDividend Part of a company’s profits that it pays to shareholders in proportion to the total number of shares held. The Board of Directors sets the amount. For common shares, the amount varies. It may skip dividends if business is poor or the directors invest money in things like new equipment or buildings.+ read full definition payout ratio (DPR) measures how much a company pays out to investors in dividends, compared to how much the stock is earning. It’s calculated by dividing the annual dividends per share by the earning per share (EPS). For example, if a company paid out $1 per share in dividends and had an EPS of $3, the DPR would be 33% (1 divided by 3).
The DPR can give you an idea of how well a company’s earnings support the dividend payments. More matureMature When an investment such as a bond reaches its maturity date. On that date, you get your money back without any penalty. Any interest payments stop.+ read full definition companies will typically have a higher DPR. They believe that paying more in dividends is the best use of their profitsProfits A financial gain for a person or company. Equals the money left over after you subtract your costs from the money you made.+ read full definition for the firm and its shareholders. Since growing companies are likely to have less or no earnings to pay out dividends, their DPR would tend to be low or zero.
- Dividend yieldDividend yield A ratio that shows annual dividend rate expressed as a percentage of the current market price of a stock. To calculate, you divide the total dividends you get in a year by the price of each share that you own.+ read full definition
The dividend yieldYield Your yearly return on an investment. It’s often stated as a percentage, such as 5%. With stocks, yield can be your yearly income from dividends. With bonds, it’s the interest you get.+ read full definition measures the return on a dividend as a percentage of the stock price. It’s calculated by dividing the annual dividend per share by the price per share.
For example, compare two companies’ stocks, each paying an annual dividend of $1 per share.
Company A’s stock is trading at $40 a share, but Company B’s stock is trading at $20 a share. Company A has a dividend yield of only 2.5% (1 divided by 40), while Company B’s is 5% (1 divided by 20).
The dividend yield can tell you how much cash flowCash flow The sums of cash a business gets in and spends out during a set period of time.+ read full definition you’re getting for your money, all other things being equal.
It’s important to keep track of how your stocks are doing. You’ll be able to make more informed decisions about when to buy, hold or sell a stock.
- Monitor your stocks’ progress by reviewing your account statements, keeping up to date on company news and following market and economic news.
- Compare your stocks’ performance against benchmarks, or stock market indices.
- Review stock indicators, including Earnings Per Share (EPS), Price to Earnings (P/E) ratio, Price to Earnings ratio to Growth ratio (PEG), Price to Book Value ratio (P/B), Dividend Payout ratio (DPR), and Dividend Yield.