Reading Company Fundamentals Before Reacting to Daily Price Moves

Every investor has felt the pull of a flashing price ticker. When people look up the Jio Platform Share Price, they are often hoping for a quick verdict on a large digital and telecom business story. Others, glancing at the Reliance Power share price, want to know whether a power-sector name is gaining or losing favour. A single number can feel like an answer, yet it is only the starting point of a proper investigation.

What a Price Really Tells You

The share price reflects everything on the market. It can be influenced by positive sentiment, negative sentiment, news and liquidity. It doesn’t indicate that the business is good, fairly valued or matches your objectives.

Even though you can have two businesses with completely different share prices they can both be valued the same in the market. This is because of the number of shares that are in issue. Share prices can be misleading, having a low share price doesn’t make them a good deal and vice versa. You need to look at how the share price relates to the underlying earnings, assets and potential for growth.

Fundamentals to Look At

Firstly look at the fundamentals of the business. Understand how the company makes money, who their customers are and what could cause disruption to their income. Next look at the numbers they publish. These can be found in their annual reports and quarterly reports. These can be found via the exchanges and investor sections of the company.

The following are important to look at:

Are they showing consistent revenue growth or do they fluctuate a lot?

How profitable are they? Look at their operating margins and net profits.

How much debt do they have? Too much debt can cause pressure on the company as interest rates rise or demand falls.

Do they have good cash flow? If they aren’t making real money it won’t matter how much they are making on paper.

What is the quality of management? How have they performed historically? What is their governance? Are they being open?

Telecom and power are typically capital intensive so you should look at their debt. Often they will have lots of debt as they invest in networks and plants.

Understanding Valuation Ratios

Valuation ratios can be useful but you need to be careful. The P/E ratio measures how much investors are paying for every Rupee of profit. The P/B ratio looks at how much the market values the business compared to its book value. They are both not great indicators on their own and can be misleading if earnings aren’t performing well (or are inflated).

Look at how the company compares to others in the industry and how they compare to themselves. A company in growth may have a higher multiple and a company with uncertain earnings may be discounted. Ratios are tools to ask better questions.

Check how you can buy the stock

Before you decide to buy anything, check how you can buy the shares. If the stock is traded on a recognised exchange then you can be assured that the price is clear, there is regulation and you can easily sell. If the shares are only available through unofficial or limited sources there will be extra risks. Try to check with an official source from the exchange or regulator to ensure that they are okay. Be wary if someone offers to get you in with unofficial sources.

If it is a listed stock then see how much volume it has and the spread. If it has high volume you will be able to trade at reasonable prices. If it has low volume you could end up paying more than you expect.

Create a Process

Instead of looking at the price every morning create a process.

Why are you interested in the company? Are they good for growth, income or diversification?

Read their latest annual report and recent quarterly reports.

See how they are valued compared to others and how they have performed historically.

How much of your portfolio could you hold?

When will you review? Maybe every quarter or year.

By writing this down you will create a habit of researching and avoid making any snap decisions during exciting or scary times in the market.

Taxation & Documentation

Any gains on your shares will be taxed depending on how long you have held them. This has been updated recently in the Union Budgets. Check the current rules using an official source or chartered accountant. Keep your contract notes and statements in an organised file.

If you are unsure then you can speak to an Investment Adviser who is registered with SEBI to create a plan that is right for your income, objectives and risk.

Be Patient

Every day the price will go up and down. Most of the time this doesn’t really mean anything. Investors who look at fundamentals, understand valuations and are patient tend to do better. Remember that the price is just an entry point to research. Let your knowledge influence your decisions.