Lesson No. 1 in Stock Market Classes - Stock Market Basics for Beginners
Friends, in this stock market classes, today I will teach you how to do fundamental analysis of Stock Market Basics for Beginners. I will show you how I do fundamental analysis and how you can analyze the stock with the help of www.ticker.finology.in. ticker is a new stock analysis tool.
Read carefully 20 lessons of these stock market classes, which is very important for stock market basics for beginners. By reading 20 lessons, you will become expert in stock market basics and will be able to do stock analysis to a great extent.
So, let's start with Lesson Stock Market Basics for Beginners today with a simple company. Whose products you must use every day in your life, Hindustan Uniliver Limited. Now I will tell you in simple terms that Hindusthan Uniliver Limited is FMCG company, FMCG means fast moving consumer goods. These are the companies which become the things of everyday need. Be it soap, shampoo, detergent, things like this are made. And Hindustan Uniliver is the largest company in FMCG in India.
Today is the first day, so let's start with basics, anyone who does not know how to invest, can still learn to invest through these 20 lessons "Stock Market Basics for Beginners" series.
Below is the chart of Hindusthan uniliver.
So we will start, in the same order in which the data is given. First of all let's talk about market cap.
What is a market cap?
It is very simple if you want to buy a whole company. If you want to become the owner of a company, then it tells us the market cap. In Hindustan Uniliver, you will have to pay 4:45 lakh crore rupees, that is, less than 5 lakh crores rupees. To buy Hindustan Lever in full. 4:45 lakh crore rupees, which is one of the largest companies in India. So this is the market cap.
How does the market cap come out?
The exit of market capitalization is very simple. You have to do just one thing, you have to take what the share price is. As the above image shows the price of this stock is Rs. 2190. You have to take this price and multiply it with the number of shares.
Hindustan Unilever's total share is 216 crores, so if you multiply 216 crores shares from 2190, then you will get around Amount of about 10,000,000,000. So market cap is simple one share price x number of shares. So if you buy all the shares of a company, then you have to pay us how much money you have to pay for the market cap. So this gives us an idea of the size of the company, how big it is.
Market cap is another interesting comparison, it is very useful in selecting stocks. You will find out at the end of this article, because it is a little advanced.
Now you have to keep in mind one thing, which is 20 lessons, it is like some mathematics classes. That is, every time you will learn something new, which will be connected to the previous taught lesson.
That is why it is important that you read these lessons from the line and read all the lessons carefully. Because what is important. Which ratio do you have to pay attention to? Which heading do you want to pay attention to? Depends on what business this company does, so it is also very important to understand.
Now come to the next ratio, PE ratio.
What is a PE ratio?
PE ratio means price to earning ratio. Now, to understand what happens, we will have to adjust a few more things. In finance, everything is connected in investing. To understand what the PE ratio would be, we would have to first understand what the share is on earning.
What is Earning Per Share?
Earning Per Share I will explain you with a simple example. Suppose there is a shop, which earns 100 rupees a year. Now the shop has four partners, and each share is 1/4. That is, everyone is a partner of 25% in that shop. So now if there is 4 shares of this shop and 1-1 shares are with all four, and that shop earns total 100 rupees. That means the net profit of that shop is 100 rupees. How much are the total shares of the shop, as the number of shares are seen in the image above. The number of shares in that shop is four, total profit is 100, number of shares is 4. So on how much profit the share has made, how much profit a person has received, 25 rupees. So this is earning per share.
In the case of Hindustan Unilever, the earning per share is around 28 rupees. I hope you will be clear earning per share.
How much is the company's total profit. Divide it, how much is the total share of the company. This means if you divide the net profit by number of shares, you will get earning per share. Now let's understand this if I want to buy shares of Hindustan Unilever, I am getting that for around 2200 rupees. And I will earn around 28 rupees from that one share in a year.
What Does PE mean?
A simple meaning of PE is, how much money you are paying to buy any share of its 1-year earnings. That is, if Hindustan Unilever earns 28 rupees in 1 year, then if a share of Hindustan Unilever was also getting Rs 28, then that means you are giving him a PE of one. That is, you are buying that share at a price equal to its 1-year earnings. But Hindustan Unilever has a share of Rs 2190. So if you get Rs. 2190, which is its price, this company has p. If you divide it by 28 rupees from EPS, then P divided by E will come to 60. That is, you are paying 70 times more money to buy Hindustan Unilever, which is his 1 year earnings, but today.
So now this PE of 70 is more or less, you should ask yourself whether you should take this share or not. Would you buy such a shop? 70 rupees, which gives you a profit of 1 rupee of the year. If I tell you that, take this such a shop from which you will earn 1 rupee of the year and I will sell it to you for 70 rupees. So would you buy that shop?
This is one thing, another thing is that a company like HUL has increased its profits almost every year for 40-50 years. At what speed has it increased, let's see. See this chart of profit growth, HUL's profit has increased by 15% in the last one year, On an average has increased by 13% every year in the last three years. On an average HUL increases its profits at the rate of 10% in the last 5 years. But before that there is another simple method which we can know that HUL is expensive or not. Now we have seen that PE is 40, now let's see because this PE changes every day. Its P is the price, and if the price falls, it will also reduce the PE. If increase, PE will be more, then this stock! Everyday work is more expensive and cheaper. So now let's see which PE usually runs on HUL's stock. usually the market gives it how much it earns for one year's earning. Just like today it is giving 70 times expressions, so let's see its history. You will see this data for 6 months, throughout the year, more than 3 years and more than 5 years.
In those over 5 years, you can find data of about 8 years and it is telling you that how many PE actuarially it runs. So as it was around the PE of 27 in 2013, it was at a PE of 40 in 2019, a PE of 40 in 2017 as well. 2018 started growing and in the last 8 years, it is expensive to win actual right now, it has never been more expensive or more PE. So a primary can be guessed, it is going expensive right now. So it is not right to assume that it is more than the last 5 years PE.
The PE market may be higher, or PE may increase, if the company starts showing more growth. It may be that the growth of the company was slow in the last 5 years and growth has accelerated in the last 1-2 years. That is, the company started earning profits fast. So if the company will earn profits fast, then the market that gives it a price will also increase. So at first glance it seems that it is expensive, it used to be on PE of 40-50, nowadays it is PE of 60. But now we see that our profits are increasing faster than before.
Sales Growth and Profit Growth. Now you see HUL has increased its profit by 15% in the last 1 year. In the last 3 years, it has increased by 13% every year. At the same time, in the last 5 years, according to 9%, its profits kept increasing every year. So in the last 3 years his performance was improved. There was more improvement in the last 1 year, so this is also one of the reasons that the market is now giving him more PE. Now it is giving more than it used to give. So let's say that there has been a slight increase in profits, but because of this PE is justified from 50 to 70? Should you take these shares at a PE of 70? Its calculation is a bit complicated, we will learn in the next lesson.
But today it is important to learn one thing. You have learned that you should compare today's PE with the historical PE for the last 3 or 5 years, and compare the historical PE with its profit growth history. Till then we have learned.
So imagine that there is a company whose profit has increased rapidly in the last 5 years. Have grown fast in 3 years. Be better in 1 year. That is, every year in the last 5 years, the profit of that company has been improved, performance has been improved and despite that its valuation chart is showing that, its PE is decreasing. That is, a company previously used to run at a PE of 50.
And earlier she used to bring 10% profit growth. Now she is bringing 20% profit growth. But earlier it used to be at 50 PE and now it is at PE of 40. In such a situation, we can tell that if the PE ratio is seen, then that company will be a good company. Keep in mind that by looking at PE and seeing what you taught today, do not close your eyes and invest in stocks. You will invest in shares only on your own research, when the entire 20-day lesson is completed. Today, these are just simple exams.
So let a company is given above for you, I am showing you this so that you can use the PE ratio and how to compare it, that should be easy. Colgate is also a very well known company, we all know it. Its PE ratio is around 3. Now let us see what its historical PE ratio has been. Its historical PE has been between 40 and 50, and is now 39. That is, it is getting around its Historical PE or a little cheaper. Why so, has Colgate's performance gone bad, let's see.
Profit growth is 15% in 1 year, 10% in 3 years, 7% in 5 years. That is, it has shown better performance in the last 3 years and better performance last year as compared to 5 years. So if we look at this much data, then there is no reason to get a PE of 39 compared to 45-50 PE. So in this case, my interest will rise, I will not invest. That this company looks fine, it can be seen further because it is cheaper than its historical valuation, and its performance is getting better than the historical performance. So by using PE ratio in this way, we can filter this company, which company is worthy of further research. Or on whom I will pay more attention and spend my time. From what we learned today, you will be able to filter only what to pay attention to, what not to pay. This is not an investment recommendation at all.
Read carefully 20 lessons of these stock market classes, which is very important for stock market basics for beginners. By reading 20 lessons, you will become expert in stock market basics and will be able to do stock analysis to a great extent.
So, let's start with Lesson Stock Market Basics for Beginners today with a simple company. Whose products you must use every day in your life, Hindustan Uniliver Limited. Now I will tell you in simple terms that Hindusthan Uniliver Limited is FMCG company, FMCG means fast moving consumer goods. These are the companies which become the things of everyday need. Be it soap, shampoo, detergent, things like this are made. And Hindustan Uniliver is the largest company in FMCG in India.
Today is the first day, so let's start with basics, anyone who does not know how to invest, can still learn to invest through these 20 lessons "Stock Market Basics for Beginners" series.
Below is the chart of Hindusthan uniliver.
So we will start, in the same order in which the data is given. First of all let's talk about market cap.
What is a market cap?
It is very simple if you want to buy a whole company. If you want to become the owner of a company, then it tells us the market cap. In Hindustan Uniliver, you will have to pay 4:45 lakh crore rupees, that is, less than 5 lakh crores rupees. To buy Hindustan Lever in full. 4:45 lakh crore rupees, which is one of the largest companies in India. So this is the market cap.
How does the market cap come out?
The exit of market capitalization is very simple. You have to do just one thing, you have to take what the share price is. As the above image shows the price of this stock is Rs. 2190. You have to take this price and multiply it with the number of shares.
Hindustan Unilever's total share is 216 crores, so if you multiply 216 crores shares from 2190, then you will get around Amount of about 10,000,000,000. So market cap is simple one share price x number of shares. So if you buy all the shares of a company, then you have to pay us how much money you have to pay for the market cap. So this gives us an idea of the size of the company, how big it is.
Market cap is another interesting comparison, it is very useful in selecting stocks. You will find out at the end of this article, because it is a little advanced.
Now you have to keep in mind one thing, which is 20 lessons, it is like some mathematics classes. That is, every time you will learn something new, which will be connected to the previous taught lesson.
That is why it is important that you read these lessons from the line and read all the lessons carefully. Because what is important. Which ratio do you have to pay attention to? Which heading do you want to pay attention to? Depends on what business this company does, so it is also very important to understand.
Now come to the next ratio, PE ratio.
What is a PE ratio?
PE ratio means price to earning ratio. Now, to understand what happens, we will have to adjust a few more things. In finance, everything is connected in investing. To understand what the PE ratio would be, we would have to first understand what the share is on earning.
What is Earning Per Share?
Earning Per Share I will explain you with a simple example. Suppose there is a shop, which earns 100 rupees a year. Now the shop has four partners, and each share is 1/4. That is, everyone is a partner of 25% in that shop. So now if there is 4 shares of this shop and 1-1 shares are with all four, and that shop earns total 100 rupees. That means the net profit of that shop is 100 rupees. How much are the total shares of the shop, as the number of shares are seen in the image above. The number of shares in that shop is four, total profit is 100, number of shares is 4. So on how much profit the share has made, how much profit a person has received, 25 rupees. So this is earning per share.
In the case of Hindustan Unilever, the earning per share is around 28 rupees. I hope you will be clear earning per share.
How much is the company's total profit. Divide it, how much is the total share of the company. This means if you divide the net profit by number of shares, you will get earning per share. Now let's understand this if I want to buy shares of Hindustan Unilever, I am getting that for around 2200 rupees. And I will earn around 28 rupees from that one share in a year.
What Does PE mean?
A simple meaning of PE is, how much money you are paying to buy any share of its 1-year earnings. That is, if Hindustan Unilever earns 28 rupees in 1 year, then if a share of Hindustan Unilever was also getting Rs 28, then that means you are giving him a PE of one. That is, you are buying that share at a price equal to its 1-year earnings. But Hindustan Unilever has a share of Rs 2190. So if you get Rs. 2190, which is its price, this company has p. If you divide it by 28 rupees from EPS, then P divided by E will come to 60. That is, you are paying 70 times more money to buy Hindustan Unilever, which is his 1 year earnings, but today.
So now this PE of 70 is more or less, you should ask yourself whether you should take this share or not. Would you buy such a shop? 70 rupees, which gives you a profit of 1 rupee of the year. If I tell you that, take this such a shop from which you will earn 1 rupee of the year and I will sell it to you for 70 rupees. So would you buy that shop?
This is one thing, another thing is that a company like HUL has increased its profits almost every year for 40-50 years. At what speed has it increased, let's see. See this chart of profit growth, HUL's profit has increased by 15% in the last one year, On an average has increased by 13% every year in the last three years. On an average HUL increases its profits at the rate of 10% in the last 5 years. But before that there is another simple method which we can know that HUL is expensive or not. Now we have seen that PE is 40, now let's see because this PE changes every day. Its P is the price, and if the price falls, it will also reduce the PE. If increase, PE will be more, then this stock! Everyday work is more expensive and cheaper. So now let's see which PE usually runs on HUL's stock. usually the market gives it how much it earns for one year's earning. Just like today it is giving 70 times expressions, so let's see its history. You will see this data for 6 months, throughout the year, more than 3 years and more than 5 years.
In those over 5 years, you can find data of about 8 years and it is telling you that how many PE actuarially it runs. So as it was around the PE of 27 in 2013, it was at a PE of 40 in 2019, a PE of 40 in 2017 as well. 2018 started growing and in the last 8 years, it is expensive to win actual right now, it has never been more expensive or more PE. So a primary can be guessed, it is going expensive right now. So it is not right to assume that it is more than the last 5 years PE.
The PE market may be higher, or PE may increase, if the company starts showing more growth. It may be that the growth of the company was slow in the last 5 years and growth has accelerated in the last 1-2 years. That is, the company started earning profits fast. So if the company will earn profits fast, then the market that gives it a price will also increase. So at first glance it seems that it is expensive, it used to be on PE of 40-50, nowadays it is PE of 60. But now we see that our profits are increasing faster than before.
Sales Growth and Profit Growth. Now you see HUL has increased its profit by 15% in the last 1 year. In the last 3 years, it has increased by 13% every year. At the same time, in the last 5 years, according to 9%, its profits kept increasing every year. So in the last 3 years his performance was improved. There was more improvement in the last 1 year, so this is also one of the reasons that the market is now giving him more PE. Now it is giving more than it used to give. So let's say that there has been a slight increase in profits, but because of this PE is justified from 50 to 70? Should you take these shares at a PE of 70? Its calculation is a bit complicated, we will learn in the next lesson.
But today it is important to learn one thing. You have learned that you should compare today's PE with the historical PE for the last 3 or 5 years, and compare the historical PE with its profit growth history. Till then we have learned.
So imagine that there is a company whose profit has increased rapidly in the last 5 years. Have grown fast in 3 years. Be better in 1 year. That is, every year in the last 5 years, the profit of that company has been improved, performance has been improved and despite that its valuation chart is showing that, its PE is decreasing. That is, a company previously used to run at a PE of 50.
And earlier she used to bring 10% profit growth. Now she is bringing 20% profit growth. But earlier it used to be at 50 PE and now it is at PE of 40. In such a situation, we can tell that if the PE ratio is seen, then that company will be a good company. Keep in mind that by looking at PE and seeing what you taught today, do not close your eyes and invest in stocks. You will invest in shares only on your own research, when the entire 20-day lesson is completed. Today, these are just simple exams.
So let a company is given above for you, I am showing you this so that you can use the PE ratio and how to compare it, that should be easy. Colgate is also a very well known company, we all know it. Its PE ratio is around 3. Now let us see what its historical PE ratio has been. Its historical PE has been between 40 and 50, and is now 39. That is, it is getting around its Historical PE or a little cheaper. Why so, has Colgate's performance gone bad, let's see.
Profit growth is 15% in 1 year, 10% in 3 years, 7% in 5 years. That is, it has shown better performance in the last 3 years and better performance last year as compared to 5 years. So if we look at this much data, then there is no reason to get a PE of 39 compared to 45-50 PE. So in this case, my interest will rise, I will not invest. That this company looks fine, it can be seen further because it is cheaper than its historical valuation, and its performance is getting better than the historical performance. So by using PE ratio in this way, we can filter this company, which company is worthy of further research. Or on whom I will pay more attention and spend my time. From what we learned today, you will be able to filter only what to pay attention to, what not to pay. This is not an investment recommendation at all.
