7 criteria to consider when choosing the right stock market shares

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You want to invest in the stock market, but you don’t know exactly how to start? In this article, we gathered the main things to
consider before making a step into the stock market:

#1 The company's current profits

To guarantee the profitability of an investment in the stock market, you must above all make sure that you invest your money in a profitable business, or at least one that has a favorable development environment. A profitable business typically shows a minimum net profit per share of 5% per year over 5 years.

#2 The performance of the action

Expressed as a percentage, the yield of a share defines the relationship between the dividend and the stock market price. When the latter is high, the performance decreases. This is the case even for a company that makes a profit. For the CAC, the average yield of a share is 2%. This relatively low return therefore indicates a good level of valuation of the shares that compose it.

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#3 The sustainability of the company's business model

The ideal business model is one framed by reliable barriers. That is to say, which offers unique products, capable of preventing competition from entering the market. This particularly concerns recognized brands such as Gucci or patented companies such as Apple.

#4 A healthy and progressive check-up

The growth of a company is justified by an increase in its equity over the long term. This value essentially corresponds to the cumulative value of all of its wealth. It grows as investors take an interest in the business. This guarantees a sufficient amount of operating cash flow for it.

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#5 The PER (Price to Earnings Ratio)

The PER is an essential indicator which makes it possible to anticipate future variations of a stock. In particular, it indicates the value at which investors are ready to buy it to generate a profit of one euro. This is an essential criterion to know the current value of a share. It helps to determine if it is over or under quoted on the stock exchange.

#6 The company's debt level

In general, a company must go into debt in order to develop better. But there is a certain limit that should not be exceeded, at the risk of weakening the development of its activities. The growth of a company is defined by its debt capacity. That is to say its ability to obtain a minimum return of 5% from its loan. A profitable company has a debt/equity ratio of less than 1. But a company that lives on no debt is always more interesting.

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#7 The RSI (Relative Strength Index)

RSI is a more advanced indicator for technical analysis. It allows to define if a stock is overbought or oversold. When a stock’s RSI is above 70, it is said to be overbought. But some traders limit this threshold to a level of 80. An oversold situation is defined by an RSI of 30. But some traders also use a threshold level of 20.

So, we hope that awareness of listed above selection of important indicators will help you to choose your best stocks on the stock market. However, this list is far from fully complete. There are still other significant criterias for successfully trading. Namely the net earnings per share (EPS), the net margin generated by the company, the Ichimoku indicator or the DMI (Directional Movement Index). So, It’s up to you to complete them during stock market training on your way to become an expert in the field!