Understanding Stock Market Statistics

Successful investors know how to interpret stock market statistics. Traditional stock market statistics are found in many newspapers’ financial section. They are the 52-Week high and low, volume, low price, high price, closing price and change. However, stock market statistics found on the various financial websites reflects data that is usually found via an investor’s fundamental analysis. Most statistics found via fundamental analysis reflects valuation, efficiency, and management effectiveness. Investors will find statistics associated with volume and volatility. Both are sometimes used to determine the direction of the market and investors’ sentiment. Most all stock market statistics can be found on popular financial websites such as Reuter, Yahoo Finance, and Google Finance.

A 52-week high is the highest stock price a stock has traded at in 52-week period. The 52-week low is the lowest stock price achieved for a 12 months. Volume indicates amount of stocks traded in day. The high is the highest stock price achieved for a trade day. The low is the lowest stock price that a stock trades for the day. A stock’s close price is the last price a stock is traded for that day. The close price can be compared to 52-week high and low to determine if the stock is too expensive or inexpensive. Net change shows the change in dollar amount of the previous day stock close price with current day’s close price. The close price will usually have an up arrow to reflect an increase or or down arrow to show the value decreased. Net change is also called Change. An example of Net Change, Company XYZ  close price has decreased by 6.66 from previous day’s close price.

Valuation statistics will help investors find the value of a company or stock. The valuation statistics of a stock exchange or industry can be used to compare an individual stock to the averages for a particular industry. By comparing an individual stock to industry’s stock market statistics or averages, investors can determine if the stock is undervalued or overvalued. Some of the popular valuation  statistics are price to earnings ratio, price to book, dividend yield, and market capitalization.

Price to earnings ratio reflects how much an investor is willing to pay for earnings. A stock with a low PE ratio usually indicates a strong company.  However, investor should never use one stock market statistic to justify an investment decision. A good PE Ratio must be supported by other financial data before stock is purchased or sold. For example, Company A has stock price of 20.00 and earnings per share of 4.00, PE would be calculated by using:

Share price/earnings per share

$20/$4.00 = 5 PE Ratio The 5 PE ratio should signal investor to do more research to ensure company is financially strong. 

Price to book value ratio compares market value with the value of the company’s assets. When the P/B ratio is low then it usually means the stock has good value. It is calculated by using the following formula:

Share Price/book value per share

120/10 = 12 P/B ratio

Dividend yield is found by dividing annual dividend per share by stock price.  For example, if the dividend per share for a stock is  .50 and the stock price is 10.00 then the dividend yield would be calculated

.50/10.00 =  5 percent dividend yield  An according CNN Money, 5 percent dividend yield is well below 8 percent yields that are difficult to sustain over time.

Market capitalization shows the value of a company.  It identifies the size of the company. For example if Company A has 10,000,000 shares outstanding and shares are trading at $7.00 per share the market capitalization will be calculated by using the following formula:

Outstanding Shares X Share price 10,000,000 x 7= $70,000,000 is the value of Company A.

Investors can use stock market statistics to reveal how efficient a company is at generating a profit. Inventory turnover and asset turnover can reveal to stock investors if the company is doing a good job at using their assets to create revenue.

Inventory turnover is the cost of goods sold divided by average inventory. This statistics reflects how fast company sells its inventory. Inventory should not sit on shelves because that can be sign of mismanagement, and lack of demand for products by customers. For example if Company G has $5000 in Cost of Goods Sold and the average inventory is 40.

$5000/40 =125 times the inventory turns over.

Asset turnover is found by the use of the asset to turnover ratio. The ratio is calculated when revenue is divided by total assets. If a company is not able to use their assets to generate revenue efficiently, it could be costly for a company.  The lack of revenue will lead for decrease in stock price. Investors can gain a lot of knowledge realizing the asset turnover statistic for a company. For example if Company has a revenue of $40,000 and total assets of $5,000

$40,000/$5,000=8 asset turnover

Stock statistics used to measure the effectiveness of a company’s managements. Companies must be managed properly to continue to create a profit at the least cost possible. A well-managed company usually translates to very good stock investment for investors. Therefore, return on equity and return on assets are statistics that indicate how well a company is managed.

Return on Equity (ROE) is used show profitability of a company. The ROE is found by dividing earnings by the average shareholder’ equity.  Management objective is to lead the company to better profits; therefore, investors can examine a company’s profitability with the use of ROE.  Profits influence stock prices.

Return on assets (ROA) is calculated by dividing net income by total assets.  Investors use ROA to determine how well a company uses their assets to create income. A good company must be able to make money in order to sustain or increase earnings, because increased earnings lead to an increase in stock price.

Volume is the total amount of shares traded for the day. A change in volume usually means a price change is about to occur. Institutional ownership shows the percentage of a stock held by large entities such as mutual funds or hedge funds. These statistics are important, because an institution buying stock usually mean stock is a good investment and vice versa when institution is selling stock.

Volatility is the movement of stock price up and down. Volatility is used to predict risk. Beta is a stock statistic used to gauge volatility for an individual stock or sector in comparison to the entire market. Chicago Board Options Exchange’s Volatility Index (VIX) used to predict volatility of the Standard and Poor 500 that will happen in 30 days. The beta for the stock market is considers 1, therefore, any stock with a beta above 1 is considered volatile and risky.  Stocks with higher betas will have higher risk than a low-beta stock, but it will have a higher return.  For a stock with a beta of 1 or lower, its volatility is less than or equal to the market. Stocks with lower betas tend to have lower return than stocks with higher betas.

The S&P 500 is a good representation of the U.S. stock market; therefore, investors use the VIX to predict volatility the U.S. stock market for the up coming 30 days.  VIX is has inverse relationship to the S&P 500.  According to CNN Money, when VIX is high or the index range will be 30 or higher, the S&P 500 is expected to be down and more volatile. Therefore, a high VIX reading will mean the market is expected to be bearish. VIX is low when it is within 20 or lower range. Therefore, the S&P 500 would be high and less volatility. For example, Company DEF has beta of .91. It would mean this company‘s stock price is not volatile and has little risk. Stock market statistics keeps investors informed, and without them, there would be no great investors.