Ahsan Gardezi
As of 2017, Pakistan’s stock indexes from Frontier-Emerging markets were reclassified. Furthermore, the country’s three major exchanges – Karachi, Lahore, and Islamabad – merged their operations, becoming the Pakistan Stock Exchange Limited (PSX). Over the course of three years, PSX has attracted top businesses and stock options have improved. So, if you’re a new broker looking to invest, how to know which Pakistani stocks you should invest in?
Related: How To Invest In Pakistan Stock Exchange
The link in above description tells you how to invest in PSX stock options, so we won’t be discussing that here. This piece will help you understand the logic behind finding a certain stock ‘attractive’ and earning money on it.
Do Your Homework | How To Know Which Stocks To Invest In?
Not all investors are big into stock picking. Many local portfolios include a few stocks that the investor thinks have potential. What does an investor look for in a stock option? Does the stock have potential to pay dividends?
When you decide to try your hand at stock picking, it’s important to do your homework. You want a good value – especially if you plan to hold on to something for a while. Here are a few things you should know about a company before investing your hard-earned cash.
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Look for trends | How To Know Which Pakistani Stocks You Should Invest In
Look for trends in a company’s revenue growth. Over time, do the earnings generally increase? If so, it’s a pretty good indication that the company is doing something right. You don’t need to see a dramatic increase for a company to be a good choice, though. Even small, regular improvement over a long period of time can be a positive indicator.
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Is the stock option of your choice stable enough for investment?
The nature of the stock market is volatile, at best. At some point, a company like HASCOL is going to lose value in the markets. But what really matters is long-term stability. In general, trend lines smooth out and head higher.
Look for that with individual companies as well. A company that weathers the downturns and comes back relatively strong, and that only seems to have real trouble when everyone else does, is probably a good bet.
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How is the stock faring in competitive industry?
Start by looking at an industry represented in the market. Does it have future potential? Industry can be a great screener when investing. However, when picking individual stocks in an industry, such as NRL, you need to look at where the company fits in – something that’s well-placed against competitors. Is there an advantage that allows it to stand out? If so, you might have found a winner.
Tip: NRL is a renowned company in Pakistan that sells a wide range of petroleum products. Check them out if you’re interested!
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Equity holdings and revenue YoY
All companies carry debt.
But that doesn’t mean you can’t use that debt as an indicator when investing. Watch out for companies with high debt levels relative to their equity. To find this number, divide the total liabilities on the company balance sheet by the total amount of shareholder equity. (If your account shows ‘officially licensed‘ under a brokerage firm, then the application you received access to shows these values.)
For those with a lower risk tolerance, that number should be at 0.3 or less. There are exceptions. For example, look at the debt-equity ratio across an industry. In the construction industry, with its reliance on debt funding, a higher ratio might be acceptable. Just make sure your pick is in line with industry norms.
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Price earning – how is HBL doing these days?
If you’re a broker licensed under an official brokerage firm in Pakistan, you’ve probably seen this around.
The P/E ratio offers a measure of how well a stock’s price is doing relative to the company’s earnings. When using fundamental analysis and value investing strategies, P/E ratio is considered a major indicator. To find the P/E ratio, divide the current share price by its earnings per share.
Note: The higher the P/E ratio, the more likely it is that there will be significant growth in the future. P/E ratio isn’t everything when investing, but it can be helpful to compare companies in the same industry or sector.
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Dividends | How To Know Which Pakistani Stocks You Should Invest In
Many investors like to look at dividends when picking individual stocks. A company that pays dividends is often one with a degree of stability – especially if it’s a dividend aristocrat that’s increased its pay-out consistently each year for decades.
Watch out for companies that have very high yields, though. A spike in dividend yield can mean a company is getting desperate. High dividends can also sometimes be an indication that a company isn’t investing enough in itself. Look for companies that pay modest, but regular (and increasing) dividends over time.
Here’s a crunch-sum of concepts you should always know about (as described above):
- Earnings & Growth
- Stability
- Strength in Industry
- Equity & Revenue
- Price Earnings
- Dividends
Research on above-mentioned aspects. You’ll be quite surprised how a statistical viewpoint of any of the above bullets helps you secure the right stock holding.
Well, there you have it guys! This was all about how to know which Pakistani stocks you should invest in. If you have any questions, leave a comment in the section provided below. Good luck!
