How to become your own stock analyst

No one wants you to be your own doctor or lawyer, so why would anyone want you to be your own stock analyst? Some people like to cook just because they like to cook. Similarly, people like Warren Buffett like the investment process.

Therefore, if you are an investor who likes to be self-reliant, then you should consider becoming your own stock analyst. Some analysts have a big question mark about their credibility, and it is better to find out for yourself. Read on to learn how you can think like an analyst, even while sitting at home.

Key points

  • Wall Street often relies on analyst estimates based on company financial data to recommend stocks and determine their target prices.
  • Individual investors can also use the same type of fundamental analysis to identify potentially undervalued stocks and set price targets.
  • Here, we will introduce some basic knowledge of researching stocks and start your own analysis.

Stock analysis is a process

It doesn’t matter whether you are an investor looking for growth or value. The first step in thinking like an analyst is to cultivate a spirit of exploration. You need to find out what to buy or sell at what price. Analysts usually focus on a specific industry or sector. In this particular area, they focus on select companies. The analyst’s purpose is to investigate in depth the affairs of the companies on his list. They do this by analyzing financial statements and all other available information about the company. In order to cross-check facts, analysts also investigate the affairs of the company’s suppliers, customers, and competitors. Some analysts also visited the company and interacted with its management to gain a first-hand understanding of the company’s operations. Gradually, professional analysts connect all the points to get a complete picture.

Before making any investment, you should conduct your own research. It is always better to study a few stocks in the same industry so that you have a comparative analysis. Obtaining information is usually not a problem. The biggest limitation of becoming your own stock analyst is time. Retail investors who have many other things to do may not be able to invest as much time as professional securities analysts. However, you can definitely choose one or two companies at the beginning to test your ability to analyze them. This will help you understand the process. With more experience and time, you can consider putting more stocks under your lens.

It’s best to start where you are

Viewing analyst reports is the best way to start your own analysis. In this way, you can save a lot of time by shortening the preliminary work. You don’t have to blindly follow analysts’ recommendations to sell or buy, but you can read their research reports to quickly understand the company, including its strengths and weaknesses, major competitors, industry prospects, and future prospects. Analyst reports are full of information, and reading the reports of different analysts at the same time will help you identify commonalities. Opinions may differ, but the basic facts in all reports are the same.

In addition, you can carefully review the profit forecasts of different analysts and finally decide on their buy or sell recommendations. Different analysts may set different target prices for the same stock. Always look for reasons when reading analyst reports. Given the same information, what is your view on current stocks? No clue? Then continue to the next step.

What to analyze

To draw reliable conclusions about stocks, you need to understand the various steps involved in stock analysis. Some analysts follow a top-down strategy, starting with an industry, and then find a winning company, while others follow a bottom-up approach, starting with a specific company, and then understand the industry’s prospects. You can place the order yourself, but the whole process must go smoothly. Any process of analyzing stocks will involve the following steps.

industry analysis

Almost all industries have public sources of information. Usually, the company’s annual report alone is sufficient to provide a good overview of the industry and its future growth prospects. The annual report also tells us the major and minor competitors in a particular industry. It should be clearer to read the annual reports of two or three companies at the same time. You can also subscribe to industry-specific trade magazines and websites to monitor the latest industry trends.

Business model analysis

You should pay attention to the company’s strengths and weaknesses. Weak industries can have strong companies, and strong industries can have weak companies. The company’s advantages are usually reflected in its unique brand identity, products, customers and suppliers. You can learn about the company’s business model from the company’s annual report, industry magazines, and website.

Financial strength

Whether you like it or not, understanding the financial strength of a company is the most critical step in analyzing a stock. Without understanding finances, you can’t actually think like an analyst. You should be able to understand the company’s balance sheet, income statement, and cash flow statement. Usually, the numbers in the financial statements are more convincing than the flashy words in the annual report. If you are not satisfied with the numbers and want to analyze stocks, there is no time to start learning and adapt to them now.

Management quality

Management quality is also a key factor for stock analysts. It is often said that there are no good or bad companies, only good or bad managers. Key executives are responsible for the future of the company. You can evaluate the quality of company management and board of directors by conducting some research on the Internet. There is a lot of information about every listed company.

Growth analysis

Stock prices follow earnings, so in order to know whether stock prices will rise or fall in the future, you need to know the direction of future earnings. Unfortunately, there is no quick formula to tell your expectations for future earnings. Analysts make their own estimates by analyzing past sales growth and profitability data as well as profit trends in that particular industry. It basically connects what happened in the past with what is expected to happen in the future. Making a sufficiently accurate profit forecast is the ultimate test of your stock analysis ability, because it is a good indicator of your understanding of these industries and companies.


Once you understand the future benefits, the next step is to understand the value of a company. What should the value of your company’s stock be? The analyst needs to find out to what extent the current market price of the stock is reasonable compared to the value of the company. There is no “correct value” and different analysts use different parameters. Value investors focus on intrinsic value, while growth investors focus on profit potential. Companies sold at higher price-to-earnings ratios must grow at higher prices to prove that their current prices are reasonable for growth investors.

Target price

The last step is to set a target price. Once you understand the different methods of predicting future earnings, you can calculate the high and low target price by multiplying the estimated earnings per share (EPS) by the estimated high and low price-to-earnings ratio. The high and low target price is the price range in which the future stock price may change with the expected future earnings. Once you know the target price, you can use it well to reach your destination.

Bottom line

The ultimate goal of every investor is to make a profit. However, not every investor or analyst is good at this. Never blindly accept the opinions of stock analysts and always conduct your own research. Not everyone can become an investment expert, but you can always improve your ability to analyze stocks.


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