Knowing how to invest is a critical piece of reaching financial independence, or at least growing the size of your portfolio. But picking investments can be tricky. If you don’t know what you’re doing, you can lose a lot of money.
In this article, I’m going to show you how to read a stock quote. This is one of the first steps to successfully invest with individual stocks and should be a cornerstone of your stock-picking process.
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Why You Should Know How to Read a Stock Quote
You might have some stocks in your portfolio, but do you really know what you own? How closely did you look at the stock quote before you bought it? Did you look at it at all?
If you know how to read a stock quote, you can get a quick picture of a company’s health and worth. You’ll be able to compare its metrics to other company’s stats across the same industry and identify winners, losers, and outliers.
And, once you understand the lingo and context of a typical stock quote, you’ll be able to see at a glance if a stock is a good buy for your current investment strategy.
Elements of a Stock Quote
From the very basics to a deep dive of the numbers, I’ll break down everything you can expect to see in an online stock quote.
Throughout this article I’ll use Tesla stock (taken from a Google chart) as an example:
You can also get more in-depth free market data from Yahoo Finance.
Below are some of the key pieces of information you’ll need to know about a stock quote to get the full picture.
At the top is the full company name. In the case of Tesla, it’s Tesla, Inc.
Stock Exchange and Stock Ticker
Right below the company name is the exchange the stock is traded on. It could be NYSE, NASDAQ, S&P, etc. There will also be an abbreviation (either next to the company name or the exchange name) that is the stock’s ticker. It can be one to four letters. For Tesla, the ticker is TSLA (see the image above).
In big font is the current trading price. Next to the price, you’ll see how much the stock has gone up or down during the day–in both dollar amount and as a percentage.
Some stock trading tools will show you the day’s biggest winners or losers based on price fluctuation, which can be valuable when timing your entry or exit from a stock or finding lucrative investment opportunities.
Open, High, and Low
You’ll get a glimpse of how the stock has moved throughout the day by looking at the opening price, its high, and its low. Often, when the markets open, there will be some upward or downward price movement as investors make their early moves.
There could also be fluctuations throughout the day, depending on news, trading volume, and investor sentiment.
This figure represents the total value of the company and is a calculation that multiplies the stock price by the number of shares outstanding. There are six categories ranging from nano cap to mega cap, but typically, you’ll only hear about the middle three, which are:
- Small Cap – $300M – $2B
- Mid Cap – $2B – $10B
- Large Cap – $10B – $300B
At the time of writing, Tesla has just surpassed Large Cap and was entering Mega Cap territory.
Short for price-to-earnings, the P/E ratio is calculated by dividing the price of one share of stock by the earnings per share for the last twelve months.
In the Tesla example, it looks like this:
So, how do you know if this is high or low (hint: it’s high), and what does that mean exactly?
Let’s first put this P/E ratio into perspective with other high-performing companies. At the time of writing, Amazon has a P/E ratio of 120.85; Apple has a P/E ratio of 34.71; and Proctor and Gamble has a P/E ratio of 27.21.
To put this into context, the P/E ratio reflects the price of the stock relative to how much the company is earning. High P/E ratios suggest that the company is in a high-growth phase, and shareholders are optimistic about the future despite paltry earnings. More mature companies tend to have lower price-to-earnings ratios, but there are also other factors to consider.
What’s important to look at here is the history. Traditionally, the majority of stocks have fallen in a P/E ratio range of between 13 and 15, particularly in the S&P 500.
The high P/E ratios we see today, even among veterans like Proctor & Gamble suggest that the market as a whole may be overvalued, especially in light of decreasing earnings during the global pandemic.
To confirm this, take a look at Proctor & Gamble’s stock price history during the past five years. The price has gone from $68.42 in 2015 to $135.46 today. However, it’s unlikely that the earnings from the company have more than doubled in this short time.
And that brings us to an important lesson about P/E ratios, which can give you incredible insight into whether a company is overvalued. Look at the P/E ratios over time and compare it to the company’s earnings. If the P/E ratio is climbing too quickly, that could signify that the stock is priced out of line with its performance.
The dividend yield will show you what percentage of the current stock price is paid in dividends. If you’re wondering how much income you can expect for holding a share of stock, this number will give you the answer.
If a company doesn’t pay dividends, then this section of the chart will have a dash instead. In this case, Tesla does not pay a dividend:
There are mixed views about whether dividend-paying stocks are a good thing. On the one hand, they provide regular and predictable income. On the other hand, it’s possible that the amount paid in dividends causes a corresponding drop in the stock price, making dividends a zero-sum game.
How you feel about dividends usually depends on where you are in your investing journey, how close you are to retirement, and what your goals are. If you’re looking for stock appreciation only, you might prefer a company that reinvests their earnings instead of distributing them. Or, if you like the idea of compounding your stock ownership or getting routine cash disbursements from your investments, then dividends are something you should seek out.
This number shows you what price the stock closed at on the previous day. If you’re looking on a Monday, you’ll see Friday’s close.
52-Week High and 52-Week Low
This range will give you an idea of whether the stock price has bounced around during the year, and if so, by how much. It’s helpful to look at how close a stock is trading to the high and low of this period in order to get an idea of investor sentiment.
History and Trend Lines
Even though a stock’s past performance won’t give you a crystal ball into the future, it can give you some context. Free online stock charts allow you to travel back days, weeks, and months into the past and see how a company has performed during these periods.
You can also use these trend lines to determine lines of support and resistance. For example, if a stock price climbs and drops and continues to hit a ceiling consistently, then that would be a line of resistance. It indicates that the stock is having a hard time breaking that barrier. But once it does, it might be due for a big rally.
A line of support, on the other hand, shows where a stock price is flirting with a bottom. If there is support at a consistent level, then you could view the stock as not being likely to drop below that line, and it could be a good time to buy. Or, and this is also likely, a stock could eventually break through its low support level and begin a rapid descent toward zero.
You might also see figures like a one-year target estimate, trading volume, and earnings per share.
- A one-year target estimate will give you an idea of how analysts see the stock one year from now. You can take this information with a grain of salt because investors are going to have varying opinions and motivations for coming up with this figure. But it can give you a general idea if the “experts” are bullish or bearish about a particular stock.
- Trading volume will tell you how many shares are trading hands each day. Stocks with a high trading volume might have more dramatic price swings. Look for news that’s making people want to sell their stock if you see a sudden spike here.
- EPS or earnings per share is how much profit the company is earning for each share of stock. The higher the earnings, the better, but you’ll want to make sure that the EPS is in line with the stock price. You can do this by comparing other stocks in the same industry.
Stock Trading Tools
Depending on the platform you use to trade stocks, you’ll have access to a variety of charts with different levels of detailed information.
When it comes to your money, being armed with as much data as possible will help you make the best choices, so we’ve highlighted four trading tools below.
The beauty of Robinhood is that it makes trading accessible to everyone.
They led the way with commission-free stock trading, which makes trading more affordable. If you’re just getting started and the idea of having multiple screens with dizzying arrays of charts is intimidating, then you’ll love the ease of use and simplicity of Robinhood.
One of Robinhood’s best features is the ability to buy fractional shares in increments as low as $1. Again, this makes stock trading accessible to anyone, even if you’ve only got $20 in your pocket.
For example, we’ve been discussing Tesla, which is insanely priced at the moment. By using the Robinhood platform (which also includes an app for convenient mobile trading), you could buy a portion of a share of Tesla and watch your investment grow without having to sink nearly $2k into the company.
Plus, you get a free stock just for opening an account, which is a fun bonus! Read more in our Robinhood Review
A product of J.P. Morgan Chase, You Invest is an easy-to-use platform that’s also packed with features. They also offer the option to use smart portfolios, which is a hands-off investment strategy where you leverage the expertise of J.P. Morgan and their technology without having to lose sleep at night, wondering if you bought a lemon stock.
One of You Invest’s best features is proprietary stock charts that have information and insights you won’t see with free tools. In addition to being able to review analyst insights and news, you’ll have one-touch access to each company’s financials and other data that normally you’d have to seek out through an annual report.
If you’re a data geek and want the world at your fingertips, then You Invest is the ideal platform. Read more in our You Invest Review
You can think of Ally Invest like an ally in your investment journey. The company has invested a lot in education, so you can basically get a finance degree directly from their website!
Like my other favorites, Ally Invest offers commission-free trading, a mobile app, and the option for a managed portfolio if you’d rather not watch your stocks like a hawk.
With Ally, you also get access to more than just a trading platform. As a full-service bank, you can open a checking and savings account, get a mortgage or auto loan, and plan for your retirement – all in one place! Read more in our Ally Invest Review
TD Ameritrade made my list of favorites for its long list of products. Whether you want to simply trade stocks or get into forex, margin trading, or cryptocurrency, TD Ameritrade has it all.
The best thing about TD Ameritrade is that it comes with Think or Swim, a powerful platform for traders of all levels that will put you one step ahead of the game. Whether you’re at your desk or on the go, you can use TD Ameritrade from your desktop or a smartphone. Read more in our TD Ameritrade Review
You don’t need me to tell you that past performance doesn’t necessarily predict a stock’s future. However, by looking at trends and numerical data, you’ll be able to make determinations about the risk-reward scenario of an investment.
What do you look for when you evaluate stock picks? Let us know in the comments.