Factors to Consider Before Investing In A Company

Factors to Consider Before Investing In A Company

Stock market investing is an enticing avenue for every investor. A reason why mutual fund investment,

Do you know how many companies are listed on the Indian stock exchange?

If you combine the listings on BSE and NSE, there are over 7000 listed companies.

But then, how do you pick the right company for your portfolio?

Investing in a company means trusting the company to deliver returns on your investments. If you pick the wrong stock and its value falls, you lose your hard-earned money. You don’t want that, do you?

Of course, you don’t! Then how do you avoid picking the wrong stock? With a little understanding and knowledge, that’s how. When investing in a company, you need to research the company and assess its profitability. After all, it’s your hard-earned money that you are investing in. You cannot go wrong.

Thankfully, there are various factors that will help you choose the right company to invest in. So, when selecting the top companies to invest in India, here are a few elements that you should double-check

Industry, Business Model and USP

These three are the holy trinity of assessing a company’s worth. First, check the company’s industry – pharma, FMCG, power, and its business. The next thing that you check is the company’s business model, i.e. whether the company operates on a high volume basis or high price basis. Lastly, check the company’s USP. There should be something setting the company apart from its competitors, a competitive edge. For example, Reliance’s Jio has an edge in providing extremely low-cost telecom services, setting it apart from competitors like Airtel and Vodafone Idea. Similarly, Facebook and WhatsApp have a competitive edge over their counterparts when it comes to social media.

The culmination of the following three factors depicts the worth of the company:

  •       Financial ratios

This factor is a bit mathematical but very important when picking companies. When selecting companies, two main ratios should be studied –

  1.     the debt to equity ratio (D/E ratio)
  2.     The price-earnings ratio (P/E ratio).

D/E = Total debt / total assets of the company:

Naturally, an ideal ratio should be below 1, which would mean that the company has more assets than liabilities. This ratio is incredibly insightful in trying times. A highly indebted company is prone to file for bankruptcy or insolvency and so, should be avoided.

P/E = Price per share / earnings per share:

P/E ratio shows the current market price per share compared to the per-share profit of the company. It shows the amount investors are willing to pay to earn a part of the company’s profit. For example, if a company’s share is trading at Rs.150 and its earnings per share is Rs.10, the P/E ratio would be 15. Usually, a P/E ratio ranging between 14 and 20 is a good bet. If the P/E is low, you can get a good bargain provided the company has strong fundamentals. This is the concept of value investing.

On the other hand, if the P/E is high, investors are confident about its growth. This is how growth investing works. So, depending on your investment strategy, you can pick companies based on their P/E ratio.

PS – Don’t forget to compare the P/E ratio of different companies in the same industry when making your choice.

  •       Past trends

Past trends simply mean the past performance of the company’s stocks. This is an important factor that gives you an insight into how the company has been performing over the years. Check for the growth in the company’s profits year on year. If there was a market crash, check how soon the company pulled itself out of the rut and became profitable. This assessment would help you understand the fundamentals of the company.

  •       Stability

Fluctuations in the valuation of the company is a common aspect; it cannot be ignored. However, if the company is stable, it would be able to weather out the bearish phase. So, check how stable the company is, especially in bearish markets.

  •       Market sentiments

Do you check customer reviews when buying a product? When it comes to investing, market sentiments give you customer reviews about investing in a company. Assess the market sentiments about the company that you want to invest in. If the sentiments are good, go ahead and make an investment. If not, you know what to do!

Summing up

Stock market investing in companies is not like a poker match where you depend on luck or bluff your way to victory. It is a serious business where you need to make decisions based on research. The factors, as mentioned above, can help you decide on the right company to invest in. If, however, you are an amateur and starting your investment journey, let experts guide you.

This is why there are very specific stock investing platforms like Stoxbox, that provide their clients with well researched, ready-made, high-quality portfolios to make their stock market investing easier.

These high-quality ready-made portfolios have the right mix of stocks and ETFs that are backtested and based on thematic investment models curated carefully by their Quantitative, Fundamental, and Technical research teams. Through Stoxbox, these professional research teams consistently study the market and provide their customers with stock investment ideas that can help them avoid common investment mistakes and the potential to book good returns from the stock market.

So, pick the right company yourself or rely on Stoxbox to build you a well-diversified high performing & quality stock portfolio.


through Systematic Investment Plan (SIP) is gaining popularity. After all, which other avenue promises quick bucks and limitless returns?

However, the stock market is a complex avenue, unlike mutual funds which are professionally managed. You need a bit of an understanding when investing your money in the stock market India. If you are a beginner in the stock market, here are some easy stock market investing tips to invest your money effectively:

  • Start with the Basics

Okay, so this one is a no brainer. When you invest in a particular avenue, you need to understand how the avenue works, right? Of course, you don’t need to enroll in a course or read thick books and become a pro. Just a basic understanding of how the market works would be good. Understand the trading concept from your friends, peers, family members, or even your trusted broker. Invest with your eyes wide open and not because you want to follow the trend.

  • Get the Tools of the Trade, i.e., a Demat and Trading Account

Stock investing needs you to have a demat account and trading account in your name. Both of these accounts are linked with your savings account from which financial transactions take place. The trading account is for buying or selling stock, while the demat account is for storing them. You need to pick a broker who would allow the opening of a demat, trading, and savings account using which you would be able to trade.

  • Handpick the Right Stocks

This is where stock investing gets tricky and so investors dilly-dally with their investments. Relax! It is not that difficult. Start by monitoring the market for a few days. Talk to your stockbroker or other seasoned investors to identify potential stocks. Then, monitor the performance of the shortlisted stocks for a few days. Past performance is not an indicator of future returns, but it can give you a context into the stock’s stability. Research the company into whose stock you want to invest. If the company has strong fundamentals, its stocks would be stable too.

  • Don’t put all Your Eggs in one Basket

A word to the wise – diversify. Don’t play favorites when it comes to picking stocks. Choose stocks of different sectors for a diversified portfolio. Why? To spread the portfolio risk. The stock market is a roller-coaster ride. While a handful of thematic funds might perform well, another might not. If you follow thematic investing, you would incur a loss sooner rather than later. But, with diversification, you minimize the volatility risk, and your stock portfolios become stable.

  • Don’t Rush. Start Small

When you are starting your journey into stock investing, don’t rush. Remember how babies take small steps when they learn to walk? Apply the concept in investing. Dip your feet a little by little to test the waters. Invest a small amount of money first and then supplement your investments as you gain confidence. As you start small, your risk exposure would be less, and you can also learn the tricks of the trade.

  • Remember, Stock Investing and Mutual Fund Investing are Different

When you seek to invest in the market, the primary two choices are stocks and mutual funds. But remember, both are different. In stock investing, you pick and invest in particular stocks. However, in mutual funds, you contribute to a pool where fund managers invest in stocks of their choice. If you want to invest in individual stocks, invest through the stock market, and for professional portfolio management, mutual funds would be suitable.

  • Patience, My Friend, is a Virtue

This last piece of advice is to make you a smart investor. Though the stock market India has the potential of generating attractive returns, you cannot ignore the risks. Stock trading needs patience. If the market is scaling new heights, invest carefully as a correction might devalue your stocks.

Similarly, when the market has crashed or entered a downturn, be patient. The market will recover; it always does.

So, approach stock investing like playing a cricket test match. Though 20-20 matches are thrilling, they keep you on the edge of your seat. If you want short-term thrill, you can play the 20-20 format through intra-day trading. But if you are a serious investor, be patient, and you would be rewarded.

This is how you invest money into the stock market, with care and consideration. Also, you need to track your investments, not to count your gains but to avoid losses. Monitor your stock portfolio regularly to weed out underperforming stocks that incur an opportunity cost. Also, check which stocks to stay invested in and which to redeem for booking your profits.


For easy stock investment, you could consider investing via Stoxbox. Through Stoxbox you can invest in high-quality ready-made portfolios having the right mix of stocks and ETFs that are backtested and based on thematic investment models curated carefully through quantitative research method by their Quantitative, Fundamental and Technical research teams. By investing through Stoxbox, we can easily say that investing money in the stock market is not hard. You just need the right platform to start and start wisely.

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