When I first got started investing, I had no idea how to read a stock quote. So that you can avoid this problem this posting gives you a brief run down on how to read a stock quote. I’ll use an example from yahoo, because everybody uses yahoo finance and I’m familiar with it. Most of the metrics are the same in other platforms as well.
So, what do you have here? Specifically, it is the stock quote for common shares in the Southern Copper Corporation. More generally, its a bunch of numbers in two columns. Lets illustrate several of the most important elements here.
Ticker Symbol: Each stock you look at will have a three letter symbol showing the stocks short hand indicator for trading purposes. This is known as the “ticker symbol”. In this case it shows the market where the symbol is traded and the symbol itself (NYSE: PCU).
Last Trade: This is the current market value of one share of the stock you’re interested in. The value of stocks are determined in an open market by buyers and sellers usually via an electronic exchange. The last trade is therefore the most up to date dollar value of your investment. This is why it is very easy to determine the value of publicly traded stocks, – you just look at the last trade value to see how much it costs.
The next three most relevant things to look for when cruising a stock are the P/E ratio, earnings per share or EPS and the dividend & yield (Div & Yield).
The P/E ratio is the price to earnings ratio. It is an indicator of how expensive the stock is relative to its earnings per share. Many schools of securities valuation such as Warren Buffet’s value investing philosophy, use this metric as a fundamental way to determine if the stock is “too expensive” or “cheap”, or “undervalued” or “overvalued”. When people make these kinds of statements they are generally talking about a comparison between a specific stock’s P/E ratio and that industry’s overall P/E ratio.
Earnings per share or EPS. Earnings are essentially the amount of profit the company generates on a per share basis. They are calculated on a per share basis so its standardized. Right – if you didn’t standardize, it would be more difficult to tell company A’s earnings from company B’s earnings. This is because the sizes of companies earnings power differs greatly. Earnings per share or EPS takes care of that pesky problem for by expressing profits over the number of shares outstanding: essentially earnings = profitability/size. Thus, you can tell if a company is more profitable than another by directly comparing their earnings per share. PCU has earnings of $7.57.
Dividend and Yield. In the quote above this is called Div & Yield. This tells you how many dollars the company is currently paying to the owners of each share of stock, the dividend. If the dividend is 2 bucks, then every share of stock you own should make a payment to you of 2 bucks over a 12 month period. The yield is the amount paid in dividends expressed as a percentage over the current market prices. In the case of the Southern Copper Corporation the dividend is $6.80 and the yield is 6%.
Here is a hint for you: dividends are a GREAT indicator of a company’s bottom line. Companies can lie about earnings numbers, but there is no substitute for a consistent dividend payment in your pocket.
There are several other metrics, but looking at these five should give you a quick sense of the most important aspects of a stock quote.
Best,
James
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