What factors of a stock help determine its potential
Knowing the answer to this question is generally not as useful as it may seem.  The stock's current price is the consensus of thousands of people who are looking at the many relevant factors (dividend rate, growth prospects, volatility, risk, industry, etc.) that determine its value.  A stock's price is the market's valuation of the cash flows it entitles you to in the future.  Researching a stock's value means trying to figure out if there is something relevant to these cash flows that the market doesn't know about or has misjudged.  Pretty much anything we can list for you here that will affect a stock's price is something the market knows about, so it's not likely to help you know if something is mispriced.  Therefore it's not useful to you. If you are not a true expert on how important the relevant factors are and how the market is reacting to them currently (and often even if you are), then you are essentially guessing.  How likely are you to catch something that the thousands of other investors have missed and how likely are you to miss something that other investors have understood?  I don't view gambling as inherently evil, but you should be clear and honest with yourself about what you are doing if you are trying to outperform the market. As people become knowledgeable about and experienced with finance, they try less and less to be the one to find an undervalued stock in their personal portfolio.  Instead they seek to hold a fully diversified portfolio with low transactions costs and build wealth in the long term without wasting time and money on the guessing game.  My suggestion for you is to transition as quickly as you can to behave like someone who knows a lot about finance.
"Check out Professor Damodaran's website: http://pages.stern.nyu.edu/~adamodar/ . Tons of good stuff there to get you started. If you want more depth, he's written what is widely considered the bible on the subject of valuation: ""Investment Valuation"". DCF is very well suited to stock analysis. One doesn't need to know, or forecast the future stock price to use it. In fact, it's the opposite. Business fundamentals are forecasted to estimate the sum total of future cash flows from the company, discounted back to the present. Divide that by shares outstanding, and you have the value of the stock. The key is to remember that DCF calculations are very sensitive to inputs. Be conservative in your estimates of future revenue growth, earnings margins, and capital investment. I usually develop three forecasts: pessimistic, neutral, optimistic. This delivers a range of value instead of a false-precision single number. This may seem odd: I find the DCF invaluable, but for the process, not so much the result. The input sensitivity requires careful work, and while a range of value is useful, the real benefit comes from being required to answer the questions to build the forecast. It provides a framework to analyze a business. You're just trying to properly fill in the boxes, estimate the unguessable. To do so, you pore through the financials. Skimming, reading with a purpose. In the end you come away with a fairly deep understanding of the business, how they make money, why they'll continue to make money, etc." "You are probably going to hate my answer, but... If there was an easy way to ID stocks like FB that were going to do what FB did, then those stocks wouldn't exist and do that because they would be priced higher at the IPO. The fact is there is always some doubt, no one knows the future, and sometimes value only becomes clear with time. Everyone wants to buy a stock before it rises right? It will only be worth a rise if it makes more profit though, and once it is established as making more profit the price will be already up, because why wouldn't it be? That means to buy a real winner you have to buy before it is completely obvious to everyone that it is going to make more profit in the future, and that means stock prices trade at speculative prices, based on expected future performance, not current or past performance. Now I'm not saying past and future performance has nothing in common, but there is a reason that a thousand financially oriented websites quote a disclaimer like ""past performance is not necessarily a guide to future performance"". Now maybe this is sort of obvious, but looking at your image, excluding things like market capital that you've not restricted, the PE ratio is based on CURRENT price and PAST earnings, the dividend yield is based on PAST publications of what the dividend will be and CURRENT price, the price to book is based on PAST publication of the company balance sheet and CURRENT price, the EPS is based on PAST earnings and the published number of shares, and the ROI and net profit margin in based on published PAST profits and earnings and costs and number of shares. So it must be understood that every criteria chosen is PAST data that analysts have been looking at for a lot longer than you have with a lot more additional information and experience with it. The only information that is even CURRENT is the price. Thus, my ultimate conclusive point is, you can't based your stock picks on criteria like this because it's based on past information and current stock price, and the current stock price is based on the markets opinion of relative future performance. The only way to make a good stock pick is understand the business, understand its market, and possibly understand world economics as it pertains to that market and business. You can use various criteria as an initial filter to find companies and investigate them, but which criteria you use is entirely your preference. You might invest only in profitable companies (ones that make money and probably pay regular dividends), thus excluding something like an oil exploration company, which will just lose money, and lose it, and lose some more, forever... unless it hits the jackpot, in which case you might suddenly find yourself sitting on a huge profit. It's a question of risk and preference. Regarding your concern for false data. Google defines the Return on investment (TTM) (%) as: Trailing twelve month Income after taxes divided by the average (Total Long-Term Debt + Long-Term Liabilities + Shareholders Equity), expressed as a percentage. If you really think they have it wrong you could contact them, but it's probably correct for whatever past data or last annual financial results it's based on." what do you mean exactly?  Do you have a future target price and projected future dividend payments and you want the present value (time discounted price) of those? Edit: The DCF formula is difficult to use for stocks because the future price is unknown.  It is more applicable to fixed-income instruments like coupon bonds.  You could use it but you need to predict / speculate a future price for the stock. You are better off using the standard stock analysis stuff: Learn Stock Basics - How To Read A Stock Table/Quote The P/E ratio and the Dividend yield are the two most important.  The good P/E ratio for a mature company would be around 20.  For smaller and growing companies, a higher P/E ratio is acceptable.  The dividend yield is important because it tells you how much your shares grow even if the stock price stays unchanged for the year. HTH There are those who would suggest that due to the Efficient Market Hypothesis, stocks are always fairly valued. Consider, if non-professional posters on SE (here) had a method that worked beyond random chance, everyone seeking such a method would soon know it. If everyone used that method, it would lose its advantage. In theory, this is how stocks' values remain rational.  That said, Williams %R is one such indicator. It can be seen in action on Yahoo finance -  In the end, I find such indicators far less useful than the news itself. BP oil spill - Did anyone believe that such a huge oil company wouldn't recover from that disaster? It recovered by nearly doubling from its bottom after that news. A chart of NFLX (Netflix) offers a similar news disaster, and recovery.  Both of these examples are not quantifiable, in my opinion, just gut reactions. A quick look at the company and answer to one question - Do I feel this company will recover? To be candid - in the 08/09 crash, I felt that way about Ford and GM. Ford returned 10X from the bottom, GM went through bankruptcy. That observation suggests another question, i.e. where is the line drawn between 'investing' and 'gambling'? My answer is that buying one stock hoping for its recovery is gambling. Being able to do this for 5-10 stocks, or one every few months, is investing. Your understanding of the stock market is absolutely correct theoretically. However there is a lot more to it. A stock on a given day is effected by a lot of factors. These factors could really be anything. For example, if you are buying a stock in an agricultural company and there was no rainfall this year, there is a big chance that your stock will lose value. There is also a chance that a war breaks out tomorrow and due to all the government spending on the war, the economy collapses and effects the prices of stocks. Why does this happen? This happens because bad rainfall or war can get people to lose confidence in a stock market. On the other hand GDP growth and low unemployment rates can make people think positive and increase the demand in a stock driving the prices up. The main factor in the stock market is sentiment(How people perceive certain news). This causes a stock to rise or fall even before the event actually happens. (For example:- Weather pundits predicted good rainfall for next year. That news is already known to people, so if the weather pundit was correct, it might not drive the prices up. However, if the rainfall was way better than people expected it to be it would drive the price up and vice versa.   These are just examples at a basic level. There are a lot of other factors which determine the price of the stock. The best way to look at it(In my personal opinion) is the way Warren Buffet puts it, i.e. look at the stock as a business and see the potential growth over a long period of time.  There will be unexpected events, but in the long run, the business must be profitable. There are various ways to value a company such as Price to earnings ratios, PEG ratios, discounted cash flows and you can also create your own. See what works best for you and record your success/failure ratio before you actually put money in.  Good Luck, "For a retail investor who isn't a Physics or Math major, the ""Beta"" of the stock is probably the best way to quantify risk.  Examples: A Beta of 1 means that a stock moves in line with the market. Over 1 means that you would expect the stock to move up or down faster than the market as a whole. Under 1 means that you would expect the stock to move slower than the market as a whole." The stock market is generally a long term investment platform.  The share prices reflect more the companies potential to be profitable in the future rather than its actual value.  Companies that have good potential can over perform their actual value.  We saw this regularly  in the early days of the internet prior to the .com bust.  Companies would go up exponentially based on their idea's and potential.  Investors learned from that and are demanding more these days.  As a result companies that do not show growth potential go down. Companies that show growth and potential (apple and google for 2 easy examples) continue to go up.   Many companies have specific days where employees can buy and sell stocks.  there are minor ripples in the market on these days as the demand and supply are temporarily altered by a large segment of the owner base making trades.  For this reason some companies have a closed pool that is only open to inside trades that then executes the orders over time so that the effect is minimized on the actual stock price.  This is not happening with face book.  Instead many of the investors are dumping their stock directly into the market.  These are savvy investors and if there was potential for profit remaining you would not see the full scale exodus from the stock.  The fact that it is visible is scaring off investors itself.  I can not think of another instance that has gone like facebook, especially one that was called so accurately by many industry pundits. Have a read of this PF&M article, which @Blackjack has an excellent answer that speaks around risk. Answers which suggest that the return is proportional to the amount invested is a very simplistic argument. It is far more complex than that. I would content that your initial question Does investing more money into stocks increase chances of profit? is not the best question. The answer is it depends upon your investment methodology. The following will increase your chance of overall profit in the stock market The value of a share depends on the value of the company, which involves a lot more than the value of its assets -- it requires making decisions about what you think will happen to the company in the future. That's inherently not something that can be reduced to a single formula, at least not unless you can figure out how to represent your guesses and your confidence in them in the formula ... and even if you could do all that it would only say what you think the stock is worth; others will be using different numbers and legitimately get different results. Disagreement over value is what the stock market is all about, I'm afraid. Thank you for replying. I'm not sure I totally follow though, aren't you totally at mercy of the liquidity in the stock? I guess I'm havinga hard time visualizing the value a human can add as opposed to say vwapping it or something. I can accept that you're right, just having a difficult time picturing it You can't. If there was a reliable way to identify an undervalued stock, then people would immediately buy it, its price would rise and it wouldn't be undervalued any more. Other metrics like Price/Book Value or Price/Sales can be used to determine if a company has above average valuations and would be classified as growth or below average valuations and be classified as value. Fama and French's 3 Factor model would be one example that was studied a great deal using an inverse of Price/Book I believe. "Volume is really only valuable when compared to some other volume, either from a historical value, or from some other stock.  The article you linked to doesn't provide specific numbers for you to evaluate whether volume is high or low. Many people simply look at the charts and use a gut feel for whether a day's volume is ""high"" or ""low"" in their estimation. Typically, if a day's volume is not significantly taller than the usual volume, you wouldn't call it high. The same goes for low volume. If you want a more quantitative approach, a simple approach would be to use the normal distribution statistics: Calculate the mean volume and the standard deviation. Anything outside of 1.5 to 2.0 standard deviations (either high or low) could be significant in your analysis. You'll need to pick your own numbers (1.5 or 2.0 are just numbers I pulled out of thin air.) It's hard to read anything specific into volume, since for every seller, there's a buyer, and each has their reasons for doing so. The article you link to has some good examples of using volume as a basis for strengthening conclusions drawn using other factors." Benjamin Grahams strategy was to invest in REALLY SAFE stocks. In his time lean businesses weren't as common as they are now and he found many companies with assets greater than the value of their shares. Putting a number figure on it isn't really necessary but the concept is useful. Its the idea that bigger companies are less turbulent (Which is something to avoid for an investor). Most companies in the top 500 or whatever will satisfy this. There's actual value and value that comes from potential for growth. I would imagine that their fundamentals are stronger, they have more advertising revenue than 2 years ago but their vision for the future and potential value is lower. So it's up to you the investor in the market to decide where you value it and to either buy sell or sit out