2. Learn about the sector, and how the business and strategy of the company compares with others in the sector. From this you can form a view as to the prospects and downside risks for the company.
3. Compare the basic valuation measures: prospective (or historic) PE, dividend yield, PEG ratio etc. This is a good time to look at analysts' recommendations.
4. If the basic valuation measures do not make sense, then look at other valuation measures such as price/sales or price/book value.
5. Look at how the share price has performed over the past twelve months (or longer).
6. Examine and compare the operating performance: revenues, margins, return on capital etc.
7. Examine and compare the financial strength: gearing, dividend cover, cash flow, tangible assets etc.
8. Look for any hidden liabilities or value, e.g. pension fund deficits, over- or under-valued properties.
A Comparison Table
Drawing up a table such as the one below is a quick and easy process which helps focus attention on what may be driving the market's valuation of a share:
All of the numbers can be taken from the CSE Company Financial Info, with just a little bit of arithmetic required for the revenue growth and cash flow ratios.
Edited article of Tony Reading from www.fool.co.uk