Investors and traders consider various details about a stock before they buy it. In this article, we will discuss the different terms often seen in stock quotes so you learn the basics of how to buy stocks. For this article, we’ll use Yahoo! Finance for all the major stock quote data. Other sites and resources will have similar information. The example below is a quote of Microsoft’s stock as of June 13, 2019 obtained from Yahoo Finance’s website.
Starting from the Top
MSFT is the ticker symbol for Microsoft. Each stock listed on a stock exchange is assigned its own ticker symbol, which serves as a unique identifier when trading and researching a security.
Just below the company name and its ticker symbol are the stock exchange where Microsoft is listed (Nasdaq) and the currency used on that exchange (USD).
Further down, the number with the biggest font is the stock price. The green number next to it shows the change in price since the last trading session. The number inside the parenthesis is the rate of that change, expressed in percentage terms.
In the example, the two numbers are green, which means the price increased since the last trading session. If they’re red that means the price has decreased.
Basic Stock Quote Information
These two columns show specific information that is often the most relevant to investors when looking at stocks. Below is an explanation about each stock quote metric and data point.
- Previous Close: the price of the stock when the last trading day ended.
- Open: the price of the stock at the time when the current trading day began.
- Bid: the price that buyers are willing to pay for each share. This is also the price that current stockholders will receive if they immediately sell their shares. The bid price is usually slightly smaller than the ask price.
- Ask: the price at which the current stockholders are willing to sell their shares. This is also the price that buyers will have to pay if they want to buy shares now. The ask price is usually slightly larger than the bid price.
- Day’s Range: the highest and lowest price during the current trading day or during the last day the stock market was open if it is currently closed.
- 52 Week Range: the highest and lowest price during the last 52 weeks.
- Volume: the number of shares traded during the current trading day or during the last day the stock market was open if it is currently closed.
- Avg. Volume: the daily average number of shares that were traded over the past three months. This determines the liquidity of the stock; how easy it is to sell or buy it in the market.
- Market cap: short for market capitalization, this is the total market value of the company. It’s equal to the current stock price multiplied by the shares outstanding.
- Beta: the volatility of a stock relative to the whole stock market. Because it’s nearly impossible to measure the return and volatility of the overall stock market, a benchmark is used; usually the S&P 500 Index in the US. A value of 1 means the stock is as volatile as the stock market. A value that’s less than one means it’s less volatile while a value that’s greater than one means it’s more volatile. The Beta measurement, in this case, is monthly volatility for the last 3 years.
- PE Ratio (TTM): also known as the price-to-earnings ratio. It’s equal to the stock price divided by the earnings-per-share (EPS). A higher number means an investor pays more per dollar earned by the company. Stocks with relatively high PE ratios (above 20 or so) are considered growth stocks. While low PE ratio ones (below 15 or so) are value stocks. TTM, or Trailing Twelve Months, means that the earnings per share is based on data from the past twelve months.
- EPS (TTM): the acronym for earnings-per-share, which is equal to the total profit of a company divided by the outstanding shares. A higher value means the company is more profitable.
Earnings date: the expected date that a company will release its next earnings report. Usually, companies release earnings on a quarterly basis.
- Forward dividend & yield: the amount a shareholder can expect to receive in the form of a cash dividend for each share over the next 12 months. The dividend yield in the brackets is the annual percentage of the dividend payments relative to the current stock price.
- Ex-dividend date: the stock will not pay out a dividend to an investor who bought it on or after this date. Instead, the dividend will be given to the shareholders who owned the stock prior to the ex-dividend date. On this day, the stock price usually drops by about the same amount as the dividend payout.
- 1y Target Estimate: the stock price predicted for the next twelve months by investment analysts and advisers. It is based on economic, social, and political factors and it’s prone to change as new information becomes available.
How to Determine the Best Stocks to Buy
We will have many articles dedicated for this subject. But ultimately, determining the best stocks to buy depends on your risk tolerance, objectives and investment constraints outlined in your investment policy statement. Stocks are much riskier compared to fixed income securities, but those with less risk tend to have:
- A regular dividend payout, which means it’s a well-established company and can afford regular distribution to their shareholders.
- A larger market cap (large-cap equity), which means it’s a well-established company that is valued greatly in the market.
- A beta of less than 1, which means the stock is less volatile than the overall market.
- PE ratios that are not too high (below 20 or so), which means investors are not paying a premium for the stock and are not pricing in high growth.
- Positive earnings that are growing over time, which means the company is profitable and growing.
- A tight day’s range and 52-week range, which means the stock is not too volatile.
- Relatively high avg. volume, which means that the stock is liquid.
- Tight bid and ask prices, which also helps with liquidity.
The Bottom Line
Now that you’re familiar with the terms in a stock quote, it’s important to remember that no single parameter will ascertain a positive return on your investment. The better you understand each metric and data point, as well as how they influence each other, the better you can avoid unnecessary losses.