How to analyze a stock

Work through six questions in order: what the company does, whether revenue is growing, whether it is profitable, whether its balance sheet is strong, whether the price is reasonable and what could go wrong. Every answer is in the company’s annual report on Form 10-K, free on SEC EDGAR. The order matters, because a P/E or a margin only makes sense once you know what kind of business produces it.

Search the company on SEC EDGAR, the SEC’s free filing database, and open its most recent Form 10-K. Most companies also link to it from the investor relations section of their website. The 10-K contains audited financial statements, a description of the business, risk factors and management’s discussion of results. For more recent numbers, open the latest 10-Q, the quarterly report, which is unaudited.

Start with revenue growth, net margin, debt to equity and the P/E ratio. Revenue growth shows whether the business is expanding, net margin how much of each sales dollar becomes profit, debt to equity how much the company relies on borrowing, and P/E what you pay for each dollar of profit. Look at several years rather than one, and compare each ratio with similar companies, because a normal margin for a grocer is very different from one for a software company.

Compare valuation ratios with similar companies and the company’s own history, while checking the growth and risks assumed in the price. Apple’s historical FY2025 diluted EPS was $7.46; calculating a current P/E requires a separately verified share price. No single ratio proves overvaluation. Compare consistent earnings definitions and test how the result changes if growth or margins disappoint.

No. A share’s nominal price depends on the number of shares issued. Apple’s four-for-one split in August 2020 increased the share count while dividing each existing share’s claim into four; the split itself created no extra business value. Compare market capitalization, earnings and other valuation measures on consistent dates, rather than judging a business by its share price alone.

Its output is being revised so that it better serves educational research, and the page shows a paused notice in its place. While it is paused, the six step method on this page covers the same ground using official filings, and working tools handle each step: the AI fundamental analysis tool for ratios, the stock risk analyzer for risk, the AI stock screener assistant for metrics and the DCF calculator for valuation.

A first pass through the six steps usually takes an hour or two with the 10-K open. Most of that time goes to reading the business description and risk factors, which you only need to do once in depth for each company. Later updates take far less time, since you mainly check the new quarter’s results against what you expected. Speed comes with practice.

No. Many investors never pick individual stocks and instead own broad index funds that hold hundreds or thousands of companies. That gives diversification, so one company’s bad news has little effect on the whole. Learning to analyze a stock is still useful, because it helps you understand what you own through a fund. If you do buy individual shares, keeping each position small limits the damage when an analysis turns out wrong.