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There are different ways of analyzing the stocks that go up. One of them is through the Efficient market theory, and the other is the Fundamental Analysis.

The Efficient market theory states that Stocks are always correctly priced since everything publicly known about the stock is reflected in its market price. However, there are certain concepts which one must know about the stock market that are mentioned below:

Analyzing Stocks that Go Up ? -Price is set by the stock market.

? -Value is determined by analysts who weigh all information known about a company.

? -Price and value are not necessarily equal.

? If the efficient market theory were correct, prices would instantly adjust to all available information. However, stock prices move above and below company values for many reasons, not all rational. An example is the irrational influence news has on the market, both national and global.

The Fundamental Analysis attempts to forecast the future value of a stock by analyzing current and historical financial company strength. Analysts try to see if the stock price is over or under valued and what that means to its future. There are dozens and dozens of factors used for this purpose. Before we launch into this task of valuing, or putting a reasonable price on a stock, we must understand the following categories or “viewpoints” through the eyes of investors:

• Value Stocks: Those undervalued by the market, the bargains where one pay 50 cents for a dollar of value.

• Growth Stocks: Those with earnings growth as the paramount consideration.

• Income Stocks: Investments that provide a steady flow of income, usually through dividends. Bonds are common investment tools used to produce income.

• Momentum Stocks: Emerging growth companies whose share prices are rapidly increasing.

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Besides, the following concepts, we need to consider the following factors sufficient to make sound fundamental decisions. How they are used will often depend on investor bias, outlined as “viewpoints” above:

1. Earnings: Company earnings are the bottom line, they are the profits after taxes & expenses. The stock & bond markets are driven by two powerful forces, earnings and interest rates. The flow of money into these markets is ferociously competitive, moving into bonds when interest rates go up and into stocks when earnings go up. It is a company’s earnings, more than anything else that creates value.

2. . Earnings per Share EPS: The amount of reported income, on a per share basis, that the company has available to pay dividends to common stockholders or to reinvest in itself. Earnings Per Share is probably the most widely used fundamental ratio.

3. Price/Sales Ratio (PSR): This is similar to the P/E ratio, except that the stock price is divided by sales per share rather than earnings per share.

4. Debt Ratio: This ratio shows the percentage of debt a company has relative to shareholder equity. That is, how much a company’s operation is being financed by debt. Smaller is better. Under 30% is good, over 50% is bad. A company’s debt load can suck the life out of what might otherwise be a successful operation with growing sales and a well marketed product. Earnings are sacrificed to service the debt.

5. Equity Returns (ROE): Return on equity is found by dividing net income after taxes by owner’s equity. Many analysts consider ROE the single most important financial ratio applying to stockholders and the best measure of a firm’s management performance. This gives stockholders confidence their money is being well-managed. What is important with this number is whether it has been increasing from year to year.

6. . Price/Book Value Ratio (aka Market/Book): A ratio comparing the market price to the stock’s book value per share. Essentially, the price to book ratio relates what the investors believe a firm is worth to what the firm’s accountants say it is worth per accepted accounting principles. A low ratio says the investor’s believe the firm’s assets have been overvalued on its financial statements.

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