How to Research a Stock Before Buying
A transparent seven-part process based on business fundamentals and primary sources.
- Know the business
- Read the most recent official filing
- Check quality of earnings
- Examine valuation
- Build a bear case
- Make sources auditable
Know the business
Explain how the company makes money, who its customers are and what drives demand. If you cannot describe its business, you may not understand the risk you are taking.
Read the most recent official filing
Use SEC EDGAR for reports such as Form 10-K and 10-Q. Review risk factors, management discussion and financial statements. Note the filing period rather than treating older figures as current.
Check quality of earnings
Compare net income with operating cash flow. Look for debt obligations, share issuance and capital expenditure needs. One ratio rarely tells the whole story.
Examine valuation
A durable business can still have a price that assumes unrealistic growth. Compare multiples only with appropriate industry and accounting context.
Build a bear case
Record three reasons your idea might be wrong. Identify the evidence that would cause you to revisit the conclusion.
Make sources auditable
Attach each claim to a dated filing, company statement or independent source. Avoid copying AI-generated figures without checking them.
Put it into practice
Explain the main idea in your own words, identify two risks and find a primary source to validate an important claim. Document what you still don't know.
Start the 30-day challengePractice in the Market LabGeneral educational content, not individualized investment advice. Last editorial review: October 8, 2026. Some rules and figures may change.
Research resources: Investor.gov · SEC EDGAR · FINRA