How to pick a stock: five metrics worth checking
A share is a piece of a business. Before buying, look at the business itself. Five numbers are enough for a first check.
- Five numbers for a first check: revenue growth, margin, debt, dividends, price to earnings.
- Compare companies only within one industry.
- Filings show the past — so single stocks stay a small part of a portfolio.
1. Revenue growth
Revenue is how much money the company took in from sales. If it rises year after year, the business is expanding. Look at the five-year average, not one lucky year.
- Above 15% a year — fast growth.
- 5–15% — moderate.
- Around zero or falling — the business is standing still.
2. Profit margin
How much of each dollar of revenue is left as net profit. A high margin means the company has an edge: a brand, technology, scale.
- Above 20% — high.
- 8–20% — medium.
- Below 8% — low: any trouble turns profit into loss.
Compare only within one industry: retailers always have lower margins than software makers.
3. Debt
A handy measure is how many years of annual profit it would take to repay the debt.
- No debt or below 1.5 — comfortable.
- Up to 3 — tolerable.
- Above 3 — in a bad year the company works for its lenders, not its shareholders.
4. Dividends
The part of profit a company hands to its shareholders. Reliability matters as much as yield: how many years in a row they have paid and raised, and what share of profit goes to it.
A yield above 6–7% is a reason for caution: it often means the share price has fallen and the market expects a cut.
5. Price to earnings (P/E)
How many dollars an investor pays for one dollar of the company's annual profit.
- Up to 15 — inexpensive.
- 15–25 — an ordinary level.
- Above 25 — expensive: future growth is already priced in, and disappointment hits hard.
A low P/E is not always a gift: sometimes a stock is cheap because the business has problems.
Putting it together
| If the goal is | What matters | What can be forgiven |
|---|---|---|
| Growth | Growth and margin | No dividends, a high P/E |
| Income | Reliable dividends, moderate debt | Slow growth |
| Preservation | Little debt, stable profit | Modest growth |
What the numbers do not show
- What comes next: filings are the past.
- One-off events: a lawsuit, an accident, a change of management.
- The quality of management and the honesty of the filings.
That is why single stocks are a small part of a portfolio, and the core is a broad fund.
All five metrics for any US-listed company, 20 years of history and a verdict for your goal.
Analyse a company →Ready breakdowns of eight hundred companies by sector.
All companies →This article is educational and is not investment advice. The thresholds are reference points, not rules.