If you are a beginner in stock investing, it is always a good idea to analyze the financial status of the stock you want to invest in instead of relying upon the rumors floated by the so-called experts and other know-alls. There are two ways to analyze a stock. One is the fundamental analysis and the other is the technical analysis. Technical analysis of a stock requires some level of mathematical knowledge. You have to understand graphs and the movement of price trends. It is rather a tedious work for a beginner. Moreover, technical analysis helps in understanding the position for a specific period. It does not take a long term perspective.

The first step is to identify the stock you want to invest in. Let us presume you want to invest in the stock of a wine making company ABC. You go to a finance website say, Yahoo Finance, CNN Money or CNBC's website. You type in the ticker symbol of the stock in their price information widget and start doing the research.

There are four ways to research a company and its stock.

The first thing is to know what actually the ABC Company makes. Does it make anything else besides the wines? There are several companies that are engaged in manufacturing multiple products some of which we do not know. For example, we generally know that General Electric makes light bulbs since a light bulb is needed in every home. But a few of us know that the General Electric also manufactures engines of airplanes and that it is engaged in the business of finance as well.

In case of the ABC Company we are trying to research, besides the wines, it is also engaged in producing beers and a wide range of sodas. Quite possibly a huge chunk of its income comes from making sodas. It also makes a lot of money from making beers as well. Its income from the wines is only a small part of its total revenues.

Now we have some quantitative information of its finances and how it makes money. The next step is to do a qualitative research about the company. The qualitative research involves understanding the price/ earning ratio and the price/ sales ratio of the company.

The price/earnings ratio is the ratio of the stock price to the annual earnings of the stock. The price/sales ratio is the ratio of the stock price to the annual sales of the company. Besides these, you also need to understand the profit ratio of the company and compare these numbers with those of other companies in the industry. Besides this you should also try to get any other important financial information about the company that can be available to you.

After acquiring the financial information about the company and forming an opinion, you should also try to find out what other analysts are saying about this stock. You should also try to learn the latest growth rates in profits and sales of the company. Check the views of the insiders and also the institutional investors who have financial specialists and can have a better idea about the performance of the stock in the future. They spend a lot of time analyzing the finances of the companies in deeper details.

If you come to know that the stock of the company is undervalued, you may buy it. Conversely the stock should be sold if it is overvalued.

News paper and TV reports provide the latest news about the performance of the companies. Quite possibly the company you intend to intend to invest in may have recently won the Best Performance Award from the business world. This news will surely boost the value of its stock.

Now you have acquired all the relevant data about the company, you should synthesize it to determine whether or not you should invest in its stock. According to the experts ?generally the rule of thumb is that the PEG ratio, that is, the price/earnings to growth ratio, should be less than 1. In other words the price earning ratio should be the same or less than the annual percentage earnings growth rate.? It must, however, be understood that PEG ratio is a thumb rule, and like every rule there are exceptions to this rule as well. Still it goes a long way in helping you to assess the value of the stock you want to invest in. It always gives pleasure to be on a surer ground when you are investing in your future.