How to read stock quotes

Scrolling quotations on TV financial programs spread stock prices at a dizzying speed. Disney is $185 per share! Apple is $128! And, wow, the price of Caterpillar has exceeded $240!

It is exciting to see stock prices rebound up and down, but it is difficult to determine whether to buy, sell or hold. When you understand the stock’s past trading conditions, current investment risks and the company’s performance, everything will become more meaningful.

If you have already invested in the market or want to start, you should know how to read stock quotes to measure the value and performance of stocks. This can help you understand whether you want to buy or sell.

Stock quotes from financial websites or search engines provide much more information than the current prices you see on a TV scroll bar or read in general articles.

Once you know how to read stock quotes, you will better understand whether the stock may be overvalued or cheap. You can also understand whether investor interest in stocks has increased, stabilized, or declined.

Familiar with how to read stock quotes

For this story, we break down common items in stock quotes into three types of information:

• How to trade stocks now.
• Past trading conditions of stocks.
• What does the company’s shares represent.

Knowing this information will enable you to better invest in the stock exchange successfully.Here we are based on our useful tips Investing for Beginners: A Crash Course to Make Your Money Grow. Think of it as investment 101, and then think of it as investment 202.

How to trade stocks now

The most significant price in a stock quote is the last price at which the stock was bought and sold. If you buy or sell shares in a well-known company when the stock market opens, the next transaction should be close to that price.

In some cases, your transaction may not be executed close to the final price. If you are trading low-priced stocks or companies that have just announced quarterly results or important news, then you should check the actual prices at which other investors or traders are willing to buy and sell stocks. If you don’t do this, you may get a price you didn’t expect.

Bidding and inquiry

If you plan to sell, please check the bid. If you place a market order, this is the best price at which another investor is willing to buy the stock. If you want to buy stocks, then you should look at the asking price, which is the lowest price someone is willing to accept to sell the stock to you or anyone else.

The difference between the buying price and the selling price is the “spread”, which is a cost, just like driving a new car from a dealership. Did you know that when you buy a new car, someone always says that the moment you drive it out of the parking lot, it will lose 40% or a similar figure? The same goes for buying stocks in the market. Most of the time, the spread on the most popular stocks is only one or two cents.

Closing and opening ceremonies

The closing price is the stock price of the last transaction on the previous trading day. If it’s Monday, it’s Friday.

The opening price is the trading price of the stock at the beginning of the current trading day. If there is a big difference between the two, then the company may have news overnight or over the weekend, such as the company has made a big acquisition or launched a monster product.

Market value

Market value or market value is the total value of the company’s issued shares. Investors divide companies based on their market value, because the stocks of large companies tend to be safer than small companies, and the average returns of small companies tend to be higher than those of large companies (although the risks are greater).

The difference between large, safer stocks and smaller but riskier stocks is why mutual fund companies offer large-cap and small-cap funds.

Just because a company is small does not mean that it will rise faster than every large-cap stock, and large companies are not always boring. The company’s market value may fall (think Lehman Brothers and the original General Motors stock), and likewise, they may soar. Apple used to be a small-cap company, but it has grown into a “large-cap” company worth more than $2 trillion. Apple has brought a lot of results for its investors, hasn’t it?

How stocks are traded on the stock exchange

The 52-week range gives us an idea of ​​the stock’s past performance and its volatility. It is the difference between the highest and lowest price of the stock in the past year. You can see 52-week highs and 52-week lows instead of a range.

Don’t care too much about whether a company is at the top or bottom of its range. It can go higher, unless it is zero, it can go lower. Range is helpful, but what really matters is whether the price is reasonable compared to the company’s future prospects.

Understand the volume

Volume is the number of stocks traded on the day. It allows us to understand how easy it is to buy and sell at market prices (professionals call it liquidity). Before you compare it with the trading volume on the chart, the numbers alone cannot tell us much. If there is a sudden spike in trading volume, then you should check the latest news from the company.

This is also important when trading lightly traded stocks. Most of us cannot disrupt the market for Apple or Tesla stocks, but even small orders are difficult to execute on low-priced stocks. This is one of the many good reasons not to buy penny stocks unless you understand what you are doing. They can easily bankrupt you.

Before buying or selling stocks in small companies, check the trading volume. If your trading volume is larger than the daily average trading volume, you may get a price that is different from the announced bid or ask price or the previous day’s closing price because you will overwhelm the market. Some published bid or ask prices only apply to 100 shares.

Understanding the beta of stock prices

Beta is a term used in the financial world to compare the risks of stocks with other stock markets. A Beta value of 1 is a normal risk. A beta coefficient of less than 1 means that the stock will not rise or fall like the market. The profits of utility stocks are predictable, so their beta coefficients tend to be low. For example, DTE Energy (NYSE: DTE), a diversified energy company headquartered in Detroit, has a recent beta of 0.63.

A Beta value greater than 1 means that the stock’s volatility is greater than other markets. The higher the Beta value, the greater the expected return on your stock purchases, and you should not be surprised if the stock falls more than the rest of the market. The beta of Tesla’s stock (OTC: TSLA) is as high as 2.

What does the company’s shares represent

Some stocks pay dividends, which are regular cash payments to stock owners. The dividends listed in the quotes are usually dividends paid in the past 12 months. The following information will help you learn more about the jargon of stock quotes.

Understand the yield

The rate of return is your expected return percentage, not a dollar figure. A dividend yield of 3% means that for every $100 invested, the stock has paid a dividend of $3 in the past year.

The more profits a company pays in cash, the less it has to expand. This is why growth companies do not pay high dividends and mature companies with fewer growth opportunities pay high dividends. Slow-growing companies pay high dividends to reward investors who own their stocks because they are less likely to surge in value compared to growing companies.

Value of earnings per share

The company reports its after-tax profits as “earnings.” The more profit you earn from your shares, the greater the value of your shares in the company to potential buyers. Earnings per share (EPS) is the company’s net profit divided by the number of publicly traded shares.

The price-to-earnings ratio or P/E lets us know the cost of profit per dollar in the stock price. It is the price per share divided by the company’s earnings for the past 12 months.

The higher the P/E ratio, the more optimistic the market is about stocks. Value investors look for stocks with low price-to-earnings ratios but good prospects. These may be cost-effective, but not if the company is in trouble. Different industries have different price-earnings ratios, so compare the ratios of the company you are following with other companies in the same industry.

For example, in mid-May 2021, Apple’s P/E ratio is approximately 27.9, while Samsung’s P/E ratio is approximately 13.4. So you can speculate that the market is more optimistic about Apple than it is about Samsung. Caterpillar and John Deere both produce heavy agricultural equipment, with 38.74 and 34.59 respectively. This tells you that the market is optimistic about both.

Research stock market

As you become more familiar with how to read stock quotes, you will become more comfortable with the ups and downs of the market-or at least knowledgeable.

Eventually, you will begin to discover what are normal changes and when you should check the news to understand what is driving these major price changes. It’s worth it. Learning how to read stock quotes is an important step in becoming a confident stock investor.

Contributor Sam Levine holds the titles of Chartered Financial Analyst® and Chartered Market Technician® and has been writing articles on financial topics since 2003. He is an adjunct professor of finance at Wayne State University in Michigan.