Ask any investor about the most efficient stock analysis tool and most of them will answer – a stock screener!
Investors use stock screeners to identify and choose the most profitable stocks in the market. They not only help in making better investment decisions but also keep you on a safer side by preventing you from investing in risky stocks. If you’re new to the stock marketing world and don’t know how to get started with a stock screener, then we’ve got you covered. Here, we will discuss the basics of analysing stocks using a stock screener tool. Let’s dive in!
What is Stock Screening?
Stock screening is basically a process of searching the companies or stocks on the basis of some predefined criteria. A stock screener works pretty much like an online shopping platform where you can set filters based on your personal preferences and apply them to find the products that match your criteria.
A stock screener has three main components:
- A master database of companies
- Predefined variables
- A powerful screening engine that identifies and displays the stocks/companies matching those predefined variables.
How to analyse a stock using a stock screener?
Stock analysis as such is a very rigorous and time-consuming process. It can take days and even weeks if you do it on your own i.e manual stock analysis. Fortunately, there are stock screeners, which can make stock analysis a breeze. These tools simplify the stock analysis process and offer you detailed results in a matter of minutes. What’s more? They are super easy to use and allow you to explore a wide range of high-performing companies that would otherwise go unnoticed.
Here are some basic things to keep in mind while analysing stocks using a stock screener:
Select the right stock screener
The first and the most important step is to select the right stock screener. If you want to get the most accurate and optimized results, then it is crucial to use the best tool possible. While there are hundreds of stock screeners available in the market, not all of them are designed equally. Hence, choose the one that is reliable, well-known, easy to use and offers real-time analysis.
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Use the screener in the right way
Once you’ve selected the right stock analysis tool or stock screener, consider 50% work to be done. Now, using the screener isn’t very complicated. Before getting started, ask yourself the following questions:
- What do you prefer: small cap stocks or large cap stocks?
- Are you looking for stocks that have fallen in price or all-time high stocks?
- What kind of industry are you planning to invest in?
- What is a favourable P/E ratio for you?
The best stock screeners allow you to search for stocks according to your preferred metrics. Most of them offer metrics like P/E ratio, trading volume, market capitalization, close prices, etc.
Further, you can create your custom screen, where you can set your criteria and create watchlists to monitor and track the performance of your shortlisted stocks before making any final decision.
By focusing on the factors that impact the price movement of stocks, a stock screener helps you to perform a quantitative analysis using fundamental indicators.
Perform side-by-side research
There is absolutely no doubt that stock screeners make your life as an investor easy and hassle-free. But you should always keep one thing in mind: nothing can replace the effectiveness of your own research.
While stock screeners or other stock analysis tools offer you a list of the most suitable stocks, you should take it with a pinch of salt — just like any other investment advice.
Once you’ve got a list of stocks matching your preferences, it is your responsibility to research and cross-check all the information to make sure it is safe to put your money in them.
As we’ve already discussed above, stock screeners don’t necessarily provide the information about news that affects certain stocks or companies. So, it’s your job to check the background and historical performance of the shortlisted companies.
Is a stock screener enough for analysing a stock?
You need to understand that stock screeners are not a magic spell for selecting the right stocks. Instead, they can speed up your stock analysis process and make it less time-consuming and more accurate. Also, nothing in this world can replace deep and thorough research. Therefore, a good idea is to use the screeners in conjunction with your research to make better decisions regarding your investments.
When you go this way, nothing can stop you from becoming a smart trader and earning good returns. And in this journey, a stock screener tool can prove to be a great companion.