How to Research a Stock Before you Buy

Are you looking to increase your chances for success in stock trading? Then, research, research, and research more. Here are 4 ways how to research a stock before you buy.

Stock trading research and analysis


A professional trader like Gorilla Trades will tell you that researching a stock before buying is the key to making good investment decisions. So yes, researching stocks beforehand can mean the difference between making losses and making huge profits in the stock market.

You don’t have to be an expert in trading to make profitable investments. But, with just enough research and knowledge, you can buy the best stocks and start a worthwhile investment journey; that is the excellent power of research.

But what does researching stocks entail? Consider the following four practical steps on how to research a stock before you buy:

1. Make Use of Stock Research Materials

There are plenty of research materials provided by companies that provide adequate knowledge about the best investments. Before deciding on which investment to make, start by doing quantitative research. This research involves looking into the financials of the company.

For example, you can review different documents that the Exchange Commission and U.S securities require companies to fill. Two examples of such informative documents include;

  • Form 10-K: This is an annual company report that features a detailed balance sheet, the company’s revenues, expenses, and details on how money is managed.
  • Form 10-Q: This document provides a quarterly update on all the financial operations and results of the company.

Even if you are not the sort to go through detailed company documents, you can also find helpful information on your brokerage firm’s website. Alternatively, you can use the best investment newsletters or look for highlights about critical financial ratios on major news websites. With this information, you can then compare the performance of different companies and decide on which firm is worth investing in. Australian Stock Report is also another investment newsletter that is worth checking out.

2. Narrow Your Focus

Financial reports and other company documents provide a ton of information; too much information could get you bogged down. Therefore, rather than go through all that tedious information, you need to narrow your focus. After all, only specific aspects of the reports can help you determine the best investments to make.

To understand the workings of a company and whether it will make an ideal brokerage firm, narrow your focus into the following  aspects:

  • Revenue: This is the main thing included in a company’s income statement. It shows the total amount of money (gross salary) that the firm made during a specific period. Usually, revenue is broken down into two types: the “non-operating revenue” and “operating revenue.” While the non-operating revenue is generated from business activities done only once, operation revenue comes from the company’s core business, making it the most important source of research.
  • Net income: A company’s net income is usually listed at the bottom of a company’s income statement. It shows the firm’s amount of money after all the taxes, expenses, and depreciation is removed from the overall revenue. In other words, it refers to the total income that is left over once all the living expenses and taxes are paid.

Stock trading

3. Conduct a Qualitative Research

Quantitative research reveals the financial details of a company. On the other hand, qualitative research provides much more detailed information than the former. It provides technicolor details that demonstrate a more actual picture of a company’s working, prospects and operations.

Remember, purchasing stocks in a company is similar to buying a personal stake in the firm. Therefore, do not just buy stocks into a company simply because you expect them to go up after a while. Instead, you should always purchase stocks because you want to own the company.

To conduct thorough qualitative research on a prospective business, consider how the company makes money. You should choose a company with a clear and transparent way of making money. Also, consider the quality of the management team. I mean, a firm is only as good as the skill and ability of the management team to steer it in the right direction.

Furthermore, consider the competitive advantage of the company. What aspects of the firm are difficult for other similar companies to eclipse or imitate? The more unique a company is, the harder it will be for other firms to emulate it, and the stronger its competitive advantage will be. When you look into these aspects of qualitative research, you will be able to make the best decision on what brokerage firms to invest in.

4. Put Your Research into Context

Before deciding on which stock to buy, understand all the factors and metrics that make your prospective company worth investing in long-term. And to do that, you will need to put your research into context.

First, look into the historical data of the company. For example, how has the company reacted to different challenges within the past years, remained resilient during tough times, and improved its performance over time? Also, use the best investment newsletters to compare key ratios of different companies within the same field line. You will have gathered enough information to help you make the best investment decisions when you do so.


Stock trading is not just like any other type of business that you can jump right into; you need to do thorough research first. Therefore, if you are looking to invest with the best company and stocks, put into practice the above-discussed 4 ways how to research a stock before you buy it.


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