The Nasdaq Dozen:
Analyze a Stock in 12 Easy Steps
Do you suffer from analysis paralysis? Do you have a stock you are interested in buying but you don't have the foggiest idea of where to even start a proper analysis? We can help.
Investing today is much different than it was 50, or even 20 years, ago. Back then, you could only get a limited amount of stock data in the daily newspaper, you have access to a seemingly unlimited amount of data on every publicly traded stock. This is both a blessing and a curse.
With access to so much information, many investors get lost in the details, but if you know where to look, you can make more informed investing decisions.
You can actually conduct a thorough analysis of any stock in 12 easy steps: a process we call the Nasdaq Dozen.
As we get started, it is important to remember that the Nasdaq Dozen is neither a crystal ball nor a guarantee of success. Rather, it is a rational, repeatable process for analyzing the most important fundamental and technical aspects of any stock.
You also need to remember that no stock is perfect. If you look hard enough, you can always find something wrong with a stock. On the other hand, if you look hard enough, you can always find something good about a stock. The trick is to invest in stocks that have more good qualities than bad. Here's where the Nasdaq Dozen comes in. By looking at 12 key aspects of any stock you are interested in, you can quickly determine if the stock is one worth pursuing or one better left alone.
To score the 12 factors of the Nasdaq Dozen, you need to assign each factor either a passing or a failing grade. After you have scored all 12 factors, add up the passing grades and compare them to the failing grades. If you have a high ratio of passing grades compared to failing grades, you can be more confident in the stock. Conversely, if you have a low ratio of passing grades compared to failing grades, you would be less confident in the stock.
For instance, you would feel more comfortable investing in a stock that had 10 passing grades and only two failing grades-a ratio of 10:2-than you would investing in a stock that only had four passing grades and eight failing grades-a ratio of 4:8.
Let's get started and learn how to score each of the 12 factors in the Nasdaq Dozen.
When you go to the Nasdaq.com home page, look for the search bar and enter the ticker symbol for the stock you are interested in evaluating. In this example, we will enter CMG, the ticker symbol for Chipotle Mexican Grill, Inc. (see Figure 1). [Editor's note: Please be aware that this guide was written in 2014 and the data cited in the charts over the next few pages reflect this. The data itself may be a little out of date, but the advice remains as relevant as ever.]
Once you have entered the ticker symbol, you will be taken to a quotes page with a left navigation. Click on the Revenue/EPS link under Fundamentals to get started with the first step in the Nasdaq Dozen (see Figure 2).
All content in this article is supplied by Wade Hansen of Learning Markets. To learn more about their investor education offerings, please visit learningmarkets.com.