How to use Stock Analytics to Invest

August 19, 2020

Reading time: 6 minutes

Hi fellow investors! Have you ever wondered how you can determine if a company is a good investment? Before deciding on your investments, it is important to check on the company fundamentals to ensure that you are placing your funds with the right company. A very useful tool that will give an overview of the most important indicators to evaluate a company is Stock Analytics.

 

What is Stock Analytics?

Stock Analytics provides insights into a company’s business, valuations and operating performance. Designed for the easy retrieval of comprehensive data, POEMS Stock Analytics summarises key financial figures and ratios, latest company news and research reports, and even analyst ratings, all in a single view. With this free tool within your trading account, you will no longer need to scour through the information highway.


How to use Stock Analytics to invest:

Very often, this tool is used to gain an in-depth understanding of a company’s financial position to make informed decisions using essential figures and financial statements. Here are three ways you can utilise this free tool to evaluate companies:


1. Evaluate performance using key ratios and figures

To ascertain if a stock is a good buy, there are several key ratios that you should review:


i. Price-to-Book Ratio (P/B Ratio)

P/B Ratio = Market Price per Share / Book Value per Share

The Price-to-Book ratio (P/B ratio) is used to compare a company’s market value to its book value. This ratio is used by value investors as a simple way of determining a stock’s valuation to pick out potential investments.

Typically, if the P/B value is below 1, it signifies that the stock may be undervalued, or vice versa. However, it should be noted that this ratio varies by industry and a better benchmark is to compare it with the industry average. P/B ratio is often used in conjunction with Return on Equity (ROE). Significant differences between the two should raise red flags about the company.


ii. Price-to-Earnings Ratio (P/E Ratio)

P/E Ratio = Market Value per Share / Earnings per Share

The Price-to-Earnings, or P/E, ratio measures a company’s share price relative to its earnings. This ratio is used to tell if a company is overvalued or undervalued in the market and whether its share is priced fairly.

In general, a high P/E ratio indicates that investors are expecting higher returns due to future growth expectations. However, it can also mean that the stock is overvalued. On the other hand, companies with low P/E ratios are often considered to be value stocks as they are undervalued. To gauge what a good P/E ratio is, you should look across the industry and at its competitors.


iii. Return on Assets (ROA)

Return on Assets = Net Income / Total Assets

Return on Assets (ROA) is a financial indicator that measures how well an organisation is utilising its assets to generate net income.

As a rule of thumb, the higher the ROA, the better it is as it signifies that the company is earning more money with lesser investments. However, similar to P/B ratio, ROA can vary significantly depending on the industry. Thus, ROA should be compared with the company’s past performance or a similar company’s ROA.


iv. Return on Equity (ROE)

Return on Equity = Net Income / Average Shareholder’s Equity

Return on Equity (ROE) measures how efficient a company is at generating income using equity investments. As shareholders’ equity is calculated by using assets minus debt, this ratio is considered the return on net assets.

A higher ROE suggests that the company is more efficient at generating income and growth from its equity financing. Generally, ROE should be equal to or just above the average of a company’s industry peers.


v. Distribution per Share / Distribution per Unit

Distribution per Share = Total Dividend Paid / Shares Outstanding

Dividend per share (DPS), or distribution per unit (DPU), refers to the sum of declared dividends issued by a company for every ordinary share outstanding. This figure is commonly used by investors to calculate their dividend payments. Typically, a growing DPS signifies that a company is performing well.


2. Compare performance with major industry peers

The information above is meant for illustrative purpose and is not a recommendation to buy, sell or hold this security. The figures are current as of August 2020.


Although key ratios and figures may tell you something about a company’s performance, it is not enough to determine whether it is performing above or below average. To better evaluate these figures, it needs to be compared with the industry peers’ ratios.

To save you the hassle, POEMS Stock Analytics provides a Peer Comparison table where you can get a quick glance of how well a company is doing as compared to its industry peers. In the table, various ratios and data such as ROA, ROE, P/E and dividend yield are available for you to analyse a company’s position among its competitors.

For example, based on the table above, you can infer that DBS has the highest ROE, P/E and DPS values among its industry peers. It also has the highest dividend yield of 5.32%. As compared to OCBC and UOB, DBS is performing better than its competitors in several areas and has a P/B ratio of just over 1. With this table, you can get a better idea of a company’s performance in relation to its industry peers and determine if it is a good investment choice.


3. Use target price and stock potential to gauge entry or exit

POEMS Stock Analytics also provides a consensus recommendation table that allows you to gauge the consensus call and target price on a specific stock under the industry analysts’ coverage. With the consensus recommendation, you can have a better sense whether the industry analysts are taking a bullish or bearish view on the specific stock. The consensus target price can be used as a reference to buy below or sell above the price targets. The table also provides recommended actions to take; whether you should buy, hold or sell the stock. You can also assess the historical recommendations to see how well a counter has been faring over time.

The information above is meant for illustrative purpose and is not a recommendation to buy, sell or hold this security. The figures are current as of August 2020.


Another useful indicator available on our Stock Analytics tool is the Phillip Research Target Price. Derived based on our in-house analysts’ forecast, a target price corresponds to buy or sell recommendations (only available for certain counters). The potential upside/downside box also provides you an insight to the market sentiment.

The information above is meant for illustrative purpose and is not a recommendation to buy, sell or hold this security. The figures are current as of August 2020.


Bonus tip!

Identify bullish or bearish trends to make informed investment decisions using Technical Analysis! Not sure to go long or short? Use Stops to help you cut losses!

The information above is meant for illustrative purpose and is not a recommendation to buy, sell or hold this security. The figures are current as of August 2020.


Analysing stocks has never been easier with this depth and breadth of data at your convenience. Get comprehensive coverage of over 14,000 stocks in 8 exchanges across 6 countries. POEMS Stock Analytics is available on POEMS 2.0, POEMS Mobile 2.0 and POEMS Mercury. Need more information about this tool? Find out more here!



POEMS suite of trading platforms is made to suit the needs of all traders and investors. Open a Cash Plus Account to enjoy commission fee as low as 0.08%, no minimum* when you trade equities. Jumpstart your investing journey with POEMS now!


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About the author

Gina Ng
Marketing Executive
POEMS

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