How to pick a company to invest in

For beginners in the stock market, picking a company to invest in might feel like a very intimidating process. There are so many different companies to choose from and so many factors to consider.

  • How do you know which company to choose from out of thousands of potential investments in the stock market?
  • How do you determine exactly what a company is worth?
  • How do you know if a company will succeed or fail?

My advice is to keep things very simple and focus on three primary factors:

  1. Perform a valuation of the company. Calculate how much money you think a company will earn over its lifetime and discount its earnings to the present.
  2. Checkout what it is selling for in the stock market. How much is the company selling for, compared to your valuation? You should only invest if the market’s valuation is significantly lower than your own.
  3. Evaluate your level of certainty. What kind of industry is the company in? Is the industry fast changing or predictable? How much competition is there? How strong are competitors? Only invest if you are convinced about the company’s future success.

Checkout some other approaches to investing so that you can achieve the best return possible on your hard earned money.

Don't Buy A SINGLE Stock Until You Read This

While conflict overseas is all media talking-heads seem to mention these days, the billionaire founder of Tesla is losing sleep over what he sees as a far bigger threat.

Elon Musk Warns: This has "vastly more risk than North Korea"

If you missed your opportunity to get in on Google, Microsoft, or Amazon in their early days, don't let it happen again. This emerging technology trend could offer a second chance for anyone who wishes they took part in these millionaire-maker stocks.

Click here to discover more!

Motley Fool contributor Motley Fool Staff has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.