Buying shares can feel daunting when you’re just starting out. With hundreds of companies listed on the London Stock Exchange, and many more on international markets, choosing where to invest isn’t straightforward. Stock research plays a vital role in helping you cut through the noise and make informed, confident decisions based on facts rather than guesswork.
This article explains how to research stocks in a clear, structured way, tailored for UK beginners who want to invest with purpose and clarity.
In This Article
How to Research Stocks for Investing: Simple Steps
2 Types of Stock Analysis
Before investing in shares, it helps to understand the two main ways people assess stocks. Each approach offers a different lens, and many investors use both to build a fuller picture.
Fundamental Analysis
This approach focuses on the core strength and value of a company. It looks at how the business performs, what drives its profits, and whether it’s likely to grow in the future.
Key areas to review include:
- Company financials like profit and loss accounts, balance sheets, and cash flow
- Performance ratios, such as price-to-earnings (P/E) and return on equity
- Trends in revenue, profit margins, and debt levels
- The company’s overall strategy, leadership, competitive position, and long-term outlook
Fundamental analysis helps you judge whether a stock’s current price reflects the company’s true value.
Technical Analysis
Rather than looking at business performance, technical analysis focuses on a stock’s price behaviour. It examines charts, price trends, and trading volume to spot possible entry or exit points.
Traders often use tools like moving averages or the Relative Strength Index (RSI) to help them identify patterns that suggest future price movements.
This method is widely used by short-term traders, but less so by long-term investors focused on business fundamentals.
5 Steps for Researching Stocks
Whether you’re drawn to well-known names in the FTSE 100 or curious about fast-growing tech companies, having a clear process makes stock research far more effective.
Start with the basics. Before examining the numbers, familiarise yourself with how the business operates. What products or services does it offer? Where does its income come from? Who are its customers?
Ask yourself:
- Is the business model easy to understand?
- Does the company have a clear advantage, such as a strong brand or unique technology?
- Is it part of a growing industry, like clean energy or online payments?
Well-known firms like Tesco or Lloyds can feel familiar, but don’t rely on name recognition alone. Dig deeper.
Once you understand the company’s operations, review its financial performance. You’ll find useful figures in annual reports, investor sections of company websites, and platforms like Yahoo Finance or Morningstar.
Focus on:
- Earnings per share (EPS): Shows how much profit the company makes for each share
- Price-to-earnings (P/E) ratio: Helps you judge if the stock is expensive or a good value
- Debt-to-equity ratio: Indicates how much the company borrows to fund its activities
- Dividend yield: Tells you the return you might get as income
These numbers provide insight into how well the business is run and its potential sustainability.
It’s not enough to view a company in isolation. Compare it to others in the same space.
If you’re considering a UK bank, for example, look at how Lloyds compares with Barclays or HSBC. Think about:
- How much market share each holds
- Their strategy and priorities
- Profitability
- Share price performance over time
This helps you understand whether the company is leading the pack or falling behind, and why.
A company’s prospects can shift quickly. Changes in leadership, government policy, or industry trends can have an impact on share prices.
Check reliable financial news sources like the Financial Times, City A.M., or BBC Business for:
- Quarterly results
- Takeovers or partnerships
- Legal disputes or fines
- Reactions from customers or investors
While short-term noise isn’t always meaningful, big developments can affect the outlook for a stock and should be part of your assessment.
Not all stocks suit every investor. Some companies offer steady income but limited growth opportunities. Others have the potential to rise quickly, but they also carry more risk.
Think about your own situation:
- Are you investing for long-term growth or short-term returns?
- Do you want a regular income from dividends?
- How much volatility are you comfortable with?
There’s no single “best” stock. What matters is choosing investments that match your financial goals, timeline, and risk tolerance.
FAQs
You can find important information about every stock by looking at the financial statements and disclosures publicly traded companies file with regulators such as the SEC or FCA. Another good source for stock research is online financial news providers. Websites like Yahoo! Finance and Google Finance allow you to research historical data, such as price charts that go back several decades.
First, it often involves charges and commissions, which can consume a considerable portion of your investment. Second, there’s no guarantee you’ll make money on a stock. Losses are inevitable in this volatile market since a stock’s value can fluctuate dramatically for many reasons.
When selecting a broker, you should ensure that the broker is licensed and regulated by top-tier authorities such as the FCA, SEC or CySEC. Additionally, you should consider brokers with a wide range of securities to help you diversify your trading portfolio and minimise risk. Moreover, the broker should have excellent research tools, educational resources, and reliable customer service.
Dividend stocks, shares of profitable companies, and those of large companies are all suitable for beginners. However, there’s no guarantee you will make money when you invest in these stocks. Therefore, always conduct thorough market research and analysis before taking a plunge.
Conclusion
Researching stocks is not about trying to guess where the market will go next. It’s about understanding the business behind the share and making informed choices based on facts. Whether you’re investing £500 or £50,000, the same principles apply – focus on the fundamentals, ignore the noise, and build your knowledge gradually.
While trends and hot tips often grab attention, they rarely lead to consistent success. A steady, research-led approach gives investors the best chance of achieving long-term financial goals.
