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.
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How can you tell how your stocks are performing?
There are several ways you can check how your stock 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 account 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 benchmark is a market or sector index. 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 portfolio.
- Follow stock market news – Are we in a bear market? A bull market? 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 inflation 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 investment 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 share (EPS)
Earning per share (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 earnings 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 growth 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 value 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 equity of a company, as listed in the annual report.
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)
The dividend 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 mature companies will typically have a higher DPR. They believe that paying more in dividends is the best use of their profits 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 yield
The dividend yield 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 flow 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.