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How to evaluate a public company stock before investing and avoid mistakes

26 August 20225 mins read by Angel One
Investment in a public company requires research. Do you know the criteria you should be looking for?
How to evaluate a public company stock before investing and  avoid mistakes
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Before you invest in any public company stock, you must do due diligence and research its prospects. In the growing trend of financial inconsistency, self-research and planning are the keys to long-term sustainability. 

Taking care of one’s financial future has become crucial for many individuals, which has increased interest in stock investment. However, some investors don’t believe in stock research, which is extremely important. This article is about researching stocks during investment in public companies.     

Why stock research is important

Before investing, investors must find the answer: is a public company good to invest in?

When someone is putting their hard earned money in buying stocks, they need to research the company to understand it is not laden with too much debt, is generating sufficient income, has a sustainable business model, growing cash flow, customers, investing in the future, and trading at a fair price on the exchange.   

While no one can say that the stock price will go up in the future, evaluating its past performance can give an honest insight into the company’s future growth. Stock research is necessary because looking at the company’s financial performance will give a prospective buyer an idea of the future.

How to start

Evaluating an IPO is not very different from assessing a listed company. Here is what you need to check out. 

Stable income growth

You can start by evaluating the periodic income growth trend of the company available on its website. You may wish to invest in a company that records a gradual growth in its quarterly, half-yearly, and annual income.

Company’s debt status compared to industry standard

A higher debt will result in less profit. So, investors use the debt-to-equity ratio as a crucial parameter to guess the financial condition of a corporation. It compares the company’s total liabilities with the total number of shareholders’ equities. Investors prefer companies with a debt-to-equity ratio of less than 1.0. 

Competitive advantage

While evaluating an investment in a public company, investors must understand the sustainability of returns they will receive on their money, meaning the competitive edge of the company and sustainability model. Companies that operate in high barrier sectors and invest in R&D and product innovation have better scope to survive.

Company valuation

Comparing the competitors’ earning per share ratio will give investors a fair idea of the stock’s actual value. You must search for company shares that are currently undervalued and have a low P/E ratio.

Dividend history

A dividend-paying company gives a sense of security. A gradually growing dividend rate indicates financial stability. If you like to perk your money in a company that pays regular dividends to earn continuous income, you need to check the dividend history of the business. 


The quality of the company’s leadership will shed light on the potential of the company to sustain and grow in the future. Able management will project the company on the growth path.

Final words

The public invests in stocks to grow wealth. However, it requires fool-proof research to find good investment options. Sometimes promoters and investment bankers value their offer expensively. So, nothing can beat good research and comparative study while investing in a new company. Compare a new player with its listed peers for a correct evaluation. 

Don’t waste a good investment opportunity in upcoming IPOs with Angel One. Open demat account today.

Disclaimer – This blog is exclusively for educational purposes. The securities quoted are exemplary and are not recommendatory.

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