How to choose a Listed company to buy shares Before buying the stocks of any company, it is vital that you conduct thorough research on the company before investing in their stocks.
Do not be tempted to invest in a company based on its reputation or big name.
The stock market in Kenya doesn’t care, and even big-name companies have failed to produce results in recent times.
Follow the tips below to choose the best company:
1. Invest in a company whose business model and industry you understand to remain updated and informed with its share performance.
The advantage is that it will prevent you from the hype that comes with such investments.
2. Evaluate the financial health of the company.
Go through years of the company’s financial statements to understand whether it is growing or not. Look for consistency in finances and profitability. One good quarter should not tempt you into making such a huge investment decision.
3. Does the company have any debt, and how much?
The share price of companies listed by NSE Kenya with more debt tends to be volatile than companies with no debt.
The income generated by the company goes to debt and interest repayment and not growth.
Determine a company’s dividend before investing. A dividend is money paid out to stock investors.
While many people consider it a regular income, it is often a sign that a company is in good financial health.
At the same time, you should check at the company’s dividend payment history. Is the dividend going up or down?
4. Check the price of their stocks.
Some investors tend to go with cheap stocks and other expensive ones.
A company’s stock may be cheap because its business is slowing down or growing less.
Their stock may also be expensive because the market is expecting the company to grow its revenue to rise rapidly in the coming years.
As a rule of thumb, buy stocks you can fairly expect to increase in value later. The best way to approach this situation is to look at the company’s stock value combined with future expectations in earnings.
Success has multiple meanings, short term success is when you buy a stock for Kes, 10.0 and sell for Kes. 12.0 making a short term profit of Kes. 2.0. Long term success is based on what the investor’s goals are in terms of a return are, Example is a return of 12.0% p.a return; to get this the investor needs to assess the companies performances that are listed in the stock exchange. To be safe it is advisable to invest in blue chip companies which have a track record of giving consistent dividends.
The investor needs to primarily rationalize where they can get a consistent return, remember this is an investment which you expect to grow and give you an income. If the stock exchange is giving a return of 9% – 10% and government treasury bills / bonds give a return of 12%, then it is smart investing to put funds in the government securities, which will give a guaranteed return