Analyzing stocks is a critical part of choosing successful investments. Thankfully, there is a huge diversity of tools available to help you with this task. Stock analysis tools cover everything from exploring company financials to identifying short-term chart patterns that can indicate a profitable price movement.
In this article, we’ll take a look at some of the best stock analysis tools that you can use to use to improve your trading.
Fundamental analysis involves looking at a company’s financial data to determine its fair-value stock price. This type of analysis is frequently used by value investors and long-term investors as a way to identify stocks that are selling at a bargain. Fundamental analysis can also be used to determine suitable entry and exit levels for a long-term stock investment.
Fundamental Analysis Tools
There are dozens of shorthand tools that fundamental investors use to compare value among stocks in the same industry or to determine the likely trajectory of a company. Some of the most important of these fundamental analysis tools are:
- Earnings Per Share (EPS) – A company’s earnings per share is announced during quarterly earnings reports. This metric is calculated as the company’s net profit divided by the number of outstanding shares.
- Price-to-earnings Ratio (P/E) – The P/E ratio divides the current stock price by a company’s last reported earnings. This can be used as a shorthand for whether a company is “overvalued” or “undervalued” relative to the broader market. On average, publicly traded stocks have a P/E ratio of around 20 to 25.
- Projected/Earnings-to-growth Ratio (PEG) – The PEG ratio divides a company’s P/E ratio by its anticipated earnings growth. PEG estimates can vary widely depending on the estimated earnings growth from multiple sources and the timescale of the growth estimate. Like P/E, a lower PEG ratio is considered to indicate that a stock is undervalued.
- Price-to-book Ratio (P/B) – The P/B ratio measures how a company’s stock price compares to its book value, which is a company’s total assets minus liabilities. P/B ratio can be compared across companies within an industry to identify potentially undervalued or overvalued stocks.
- Dividend Yield – A company’s dividend yield is it’s annual dividend payout divided by the share price. This metric is particularly important for identifying stocks with potentially high dividend returns.
Fundamental Analysis Platforms
Fundamental analysis may seem straightforward on its face, but compiling data for dozens of companies and comparing across an industry is much easier with dedicated platforms.
Beat the Market Analyzer
Beat the Market Analyzer is an extremely simple tool that automatically compiles essential fundamental information about a stock in question and its industry competitors. The platform is particularly useful because it forces investors to ask some of the non-quantitative questions that are essential to fundamental analysis – for example, whether a company has a moat that makes it hard for newcomers to compete.
Finviz is a stock screener that allows investors to search for stocks based on a wide variety of fundamental and financial metrics. The platform puts a heavy emphasis on visually displaying screener results, which makes it much easier to compare financial data for multiple companies within an industry. Investors can also save searches with Finviz, which makes it simple to recycle complex screens over time.
YCharts is a charting platform, but with charts centered around historic financial data rather than current price data. This analysis tool stands out for allowing investors to look at how fundamental metrics have changed over time. In particular, the platform’s timeseries analysis tool allows traders to examine potential trends in fundamental metrics and compare these trends between companies.
Technical analysis involves studying price charts to try to predict upcoming movements in a stock’s price. While technical analysis is often used for short-term predictions (intra-day or intra-week), it can also be applied over longer, multi-year timescales. Technical analysis is in many ways more art than science, so many tools taking this approach interpret signals differently.
Technical Analysis Tools
The technical analysis toolbox is virtually unlimited, as many individual traders have their own custom chart patterns and price signals that they have developed. However, there are some basic technical analysis tools that are shared among most technical traders:
- Support and Resistance Levels – Support and resistance levels describe prices that a stock has difficult breaking below or above. These prices may be “lines” or “bands” depending on your interpretation of a stock’s price patterns. Typically, when a stock breaks through resistance levels, it is predicted that a large movement will ensue.
- Moving Averages – Moving averages track the price of a stock over time, with a varying degree of lag based on the averaging timescale. Moving averages may represent support or resistance levels, or may indicate that a stock’s price is trending up or down. Importantly, many traders look at moving averages over multiple timescales rather than just a single average.
- Moving Average Convergence/Divergence (MACD) – MACD is an oscillating indicator that shows the relationship between a stock’s short-term and long-term moving averages. Essentially, this indicator shows momentum, although traders may interpret buy and sell signals at multiple points within the oscillation pattern.
- Relative Strength Index (RSI) – RSI is another momentum oscillator that indicates whether a stock is overbought or oversold based on recent price movements. This indicator is popular because it offers hard threshold lines that trigger buy and sell signals, but it should be interpreted in the context of other technical analysis tools as well.
Technical Analysis Platforms
Importantly, the tools above are just a small sampling of hundreds of technical indicators and tools that traders frequently use. Many technical analysis platforms offer many more advanced tools for technical analysis and allow traders to develop and test their own analysis strategies.
Thinkorswim is a free charting platform available to TD Ameritrade brokerage customers. This platform comes pre-loaded with hundreds of technical analysis tools and offers traders the ability to define custom screens and indicators using a simple scripting language. Thinkorswim is particularly useful because it allows traders to monitor chart data in real-time and to display multiple stock charts simultaneously.
TrendSpider is a technical analysis platform that automates the process of identifying chart patterns. The platform will automatically identify potential trendlines on a chart, which can take some of the guesswork out of interpreting price patterns. This is especially helpful for identifying Fibonacci retracements, which can be difficult to place accurately by hand. TrendSpider also allows traders to set up alerts for when specific trendlines are breached or when specific chart patterns are identified.
Multicharts offers extremely high-resolution, real-time charts for advanced technical traders. This technical analysis platform includes a market replay function that allows traders to test out new strategies and find ways to identify chart patterns as they develop. Furthermore, Multicharts includes capabilities for backtesting custom technical indicators over multiple timescales, including on a tick-by-tick basis.
Putting Tools for Stock Analysis to Work
Fundamental and technical stock analysis is made significantly easier with the help of tools and platforms. Whether for data visualization, screening, or pattern identification, the analysis platforms we highlighted can help you find profitable trades and identify entry and exit points. Importantly, many stock analysis tools also cross the divide between technical and fundamental analysis, and can be used to identify both potential investments and the optimal points at which to buy and sell.