How to research a stock: a step-by-step method

Most people "research" a stock by reading what other people think about it. A headline, a video, a forum thread, a price target. That is collecting opinions, not research. Real research means going to the original sources, measuring what changed, and testing an explanation against the evidence that could break it.

The good news is that almost every source a professional analyst uses for a US-listed company is public and free. What separates a useful conclusion from a guess is the method. Here is one you can repeat for any company.

Step 1: Write down a precise question

"Is this a good stock?" cannot be answered. "Is this company's revenue growth coming from selling more units or from raising prices?" can. A precise question tells you which documents to open and which numbers matter.

Good research questions usually ask about a change and a mechanism:

• What changed in the last few quarters: revenue, margins, cash flow, debt, guidance?
• What is the most likely cause of that change?
• What would we expect to see next if that cause is real?

Step 2: Read what the company filed, not what was said about it

US public companies file their reports with the Securities and Exchange Commission. The annual report is the 10-K, the quarterly report is the 10-Q, and material events such as earnings releases, acquisitions or executive departures appear in an 8-K. All of them are free on the SEC's EDGAR system. Our guide to using SEC EDGAR shows how to find them in a few minutes.

Start with the most recent 10-K. Read the business description, the risk factors and management's discussion of results. Then read the latest 10-Q and the most recent earnings release to see what changed since the annual report. Our walkthrough on how to read a 10-K covers which sections to read first.

Step 3: Build a small table of the numbers yourself

Do not rely on a chart someone else made. Put at least eight quarters of these figures into a spreadsheet, taken directly from the filings:

Calculate growth rates and margins yourself. A rise in revenue and a rise in gross profit are different findings, and the gap between them is often where the real story sits.

Step 4: Form a hypothesis and look for the evidence against it

Once the numbers show a change, write one sentence explaining why it happened. Then do the part most people skip: list the evidence that would contradict you. If margins fell, was it discounting, a change in product mix, higher input costs, or a one-time charge? Each explanation predicts something different in the filings. The one that survives the most checks is your working explanation, not your final answer.

Step 5: Check the price and the context

Fundamentals tell you what the business is doing. The share price tells you what the market already expects. Compare the stock's recent performance with a relevant index and its sector, and note whether the price trend agrees or disagrees with what the filings show. A strong business can still be a poor investment at the wrong price, and a weak quarter can already be reflected in the stock.

Also check the calendar: the next earnings date, any scheduled product launch, debt maturity or regulatory decision. Those are the dates when your explanation gets tested.

Step 6: Write a short note and decide when to revisit it

Finish with a one-page note: what changed, the evidence, the mechanism you think explains it, the strongest counter-argument, and the specific observation that would make you change your mind. Put a review date on it. Research is not finished when you reach a conclusion; it is finished when you know what would overturn it.

This is the same loop our newsroom follows, and it is the core of our ebook How to Research Like a Wall Street Analyst, which adds exact data sources, worksheets and worked examples for companies, sectors and the economy.