How Analysts Present Their Findings

The study of all this data is known on Wall Street as fundamental analysis. Most analysts would view themselves as fundamental analysts, meaning they make investment decisions based on the available information about a company.

After going through the history of the ratios above, other ratios not explained here and the non-financial information available on a company (product, strategy, marketing, management, etc.), the analysts build models that project what will happen to a company in the future. Based on these models they issue two pieces of information.

The first piece of information you will likely see is an analyst's projected earnings per share (EPS) for a company. Projections for many companies are available online, where you can see the mean or average projection as well as the extreme projections and the recent movement in the projections.

Since investors rely on analysts to filter the information provided, when analysts change these projections, it will often affect the price of the stock. In other words, the analysts' projections act as an information source in their own right. When an analyst lowers an earnings projection for a company, people assume they have learned something negative about a company's future performance. As a result, they believe a company is less valuable and sell their stock. Conversely, when an analyst raises their earnings projection, people believe they have learned something positive about the future of a company. In this case investors will view the company as more valuable and proceed to buy the stock.

An analyst also makes their own buy or sell recommendation, often including a target stock price. While many firms use synonyms for the following terms, these are the basic recommendation levels:

Strong buy - Investors are strongly encouraged to buy a stock with this recommendation.

Buy - Buying a stock with this recommendation is suggested, but with a little less emphasis.

Accumulate - Investors are advised to buy a stock with this recommendation steadily over time.

Hold - Investors are advised neither to buy nor sell, but if you are a pessimist reading between the lines, this might be construed as a signal to sell.

Sell - The analyst recommends that investors unload this stock.

When Is The Right Time To Buy?

Once you have found an investment idea, researched it thoroughly and have done a detailed analysis, it will be time to make a decision. If an individual stock seems to have good prospects, if it fits your portfolio and if the risk is acceptable, the time may be right to buy the stock.

The decision on when to buy is yours alone.

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Dollar Cost Averaging