How do I Evaluate Stock Performance?

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  • Written By: John Lister
  • Edited By: Kristen Osborne
  • Last Modified Date: 26 March 2020
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Assessing stock performance is a more complicated matter than simply tracking whether a stock's price has risen or fallen over time. Investors need to put performance into context, such as taking account of time, overall market performance and industry sector performance. As well as looking at price, investors may consider volatility and yield as important factors.

A major key to evaluating stock performance is to look for context. For example, choosing a time period for assessment is important. If the time period is too short, the investor may attach a disproportionate level of importance to the results; if the time period is too long, the results may be the outcome of factors that are no longer relevant. It's also important to consider changes in stock value proportionally, rather than simply the raw increase or decrease.

Simply looking at the movement in price of a stock will usually be insufficient. This is because the price may have moved largely because of overall market movements. For example, it may have leaped during a stock market boom, or slumped during a market crash. It thus makes sense to compare a stock to the performance of an overall market during the period. This can either be done in comparison to records of the market, or by looking at the performance of index-linked products such as tracker funds.


It's possible to go even further in finding a fair point of comparison. Instead of simply comparing a stock's performance alongside that of a market, an investor could compare it with other stocks within the same sector. This will give a better insight into the strength of the individual stock. For example, bad publicity about diabetes could mean all soda company stocks fall, but a closer examination may show one company's stock fell by a much lower margin than others. This may suggest the company is fundamentally stronger and its stocks may be more resilient to market shocks.

Another issue to look at with stock performance is volatility. This is a measure of how widely the stock price has varied back and forth. This may provide a clearer insight than simply comparing two points in time. A particularly volatile stock may appear to have performed better with such a time period comparison, but the volatility could mean it is a more riskier investment.

Stock performance is not entirely about prices, as stocks can make the investor money even before they are sold. This is because of companies issuing dividends, usually once or twice a year, to investors. The ratio of the annual dividend payment to the stock price is listed as the yield. This will be particularly of interest to so-called value investors, who primarily aim to hold on to stocks to make money this way.



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