Thanks to the introduction of new technologies over the years, investing has become relatively simple, and everyone should be doing it. After all, the stock market opens the door to financial stability leading up to and throughout retirement.
However, investing can seem arcane to newcomers and uses a lot of jargon. There are still some points of complexity that are crucial to understand if you’re going to take part in the system.
One of the first things you’ll need to learn is how to read stock quotes and what the data they contain tells you.
What Is a Stock Quote?
There is nobody behind the curtain analytically picking exactly what the price of a stock should be at any given time. Instead, orders are routed to stock exchanges through brokerages — some on the buy side, and some on the sell side.
The price of any trade is the price at which both a seller is willing to sell shares of a particular stock, and a buyer is willing to buy them. Trades are only executed when both parties involved in the transaction agree on pricing.
Stock quotes give you several bits of data that help you set your price for the purchase or sale of stock.
Data Found in Stock Quotes
Stock quotes are packed with real-time data being fed through the complex machine that is the stock market. As you start to invest, you’ll find that some quote providers are relatively simplistic, only offering bits of information, while others are more detailed, offering everything a professional investor would need to see.
Here are the basic pieces of information found in virtually all stock quotes:
Stock quotes provide basic company identification information such as the company name and the ticker symbol the stock trades under. These identifiers help you distinguish between companies with similar names.
The Last Trade Price & Time
Stock quotes include data from the last trade that was completed. This includes both the share price at which the trade was executed and the time at which the trade was made. Both of these are crucial bits of information for the savvy investor:
- Share Price. The most recent price paid in the last purchase or sale of a stock gives you a baseline for what you can expect when you buy or sell shares.
- Time of the Last Trade. The time of the most recent trade is also an important indicator. If it was seconds ago, you know you’re trading a highly active stock, but if the last trade was hours ago, or even 15 minutes ago, that tells you the stock isn’t very active. The fewer people trading a stock, the harder it will be to get rid of shares if you decide it’s time to exit your position.
The Stock Price Change Percentage
Most stock quotes will have a “Change %” section. This is the change in price the stock has experienced since the opening of the trading session. In most cases, quotes tell you if the change is positive or negative not only with symbols placed in front of the numbers, but also by the color of the numbers, with green representing gains and red representing declines.
The Previous Session’s Closing Price
The closing price is the last price the stock traded for during the last trading session. Investors often look at the price the stock closed at during the previous day to determine if there’s been a gap up or down from the close of the market to the open. Large gaps between closing and opening prices are often indicators that big news that has the potential to significantly move the needle has been or will be released.
The Current Session’s Opening Price
Most quotes also provide the opening price, or the price at which the first trade of the day for the stock took place.
The opening price compared to the current price and activity throughout the day tells you what direction the stock is trending for the current session and the momentum of its trend in that direction.
The bid is the highest price an investor is currently willing to pay for shares of any given stock. In some cases, quote providers won’t just tell you the bid price, but also the number of shares at that bid price. Both of these points of data have significant potential to improve your rate of success when trading or investing.
- Bid Price. Bid prices are one of the key factors that make up the current stock price. Keep in mind, a trade isn’t executed until the buyer and seller have agreed on price. When the buyer is willing to pay significantly less than the seller is asking, one of the parties will have to budge, which can lead to volatility. On the other hand, when the buyer is willing to pay a price that’s very close to the seller’s asking price, there’s not much compromise necessary, which makes the next trade’s price easier to predict.
- Total Number of Shares. The number of shares available for sale or wanted for purchase at any given price is important for both the buyer and seller, especially if they’re wanting to buy or sell large blocks of shares. For example, if you’re buying 100 shares and you find a seller willing to accept your bid price, but they only have 10 shares to sell, you won’t be able to fill your whole order from that seller.
The ask is the price of the stock from the seller’s point of view. The ask is the lowest price a seller is willing to accept in the transaction. The ask works just like the bid in that it includes the price a seller is willing to accept and the number of shares they have to offer at that price.
The difference between the bid and the ask is called the spread, or the bid-ask spread.
Other Data Often Included with Stock Quotes
While all of the data above provides crucial information when you’re considering buying or selling a stock, some quote providers go above and beyond, offering some or all of these finer details:
Market capitalization, or market cap, is the total price the market has determined a publicly traded company is worth. Capitalization is an important piece of information that tells you quite a bit about the company you’re considering trading.
Market cap is a helpful indicator of the risk-versus-reward profile you’ll be accepting when you hold the stock.
Smaller companies tend to have more room to grow than larger companies that have already addressed the majority of their target audience. However, investing in small companies also comes with high levels of risk.
Although small-cap stocks have historically outperformed their large-cap counterparts, declines in these stocks have historically been more significant than drawdowns in larger, more stable companies.
The price-to-earnings ratio, or P/E ratio, is a valuation metric designed to gauge whether a stock is undervalued, overvalued, or trading at fair market value. After all, the key to winning in the market is buying low and selling high, which knowing the P/E ratio can help to achieve.
A stock’s P/E ratio is calculated by dividing the price of a single share by the earnings per share (EPS) the company produces annually. A low P/E ratio suggests shareholders are paying less per unit of earnings. Companies that aren’t profitable have no P/E ratio because earnings are zero (or negative).
Investors often compare this data to competing companies to determine if a stock is priced fairly, trading at a discount, or trading at a premium relative to its peers. As a buyer, you’re getting the best deal when a stock is undervalued (lower P/E) in comparison to its peers, and as a seller, you’ll be getting the best deal when a stock is overvalued (higher P/E) compared to its peers.
52-Week High & Low
52-week highs and 52-week lows are exactly what they sound like. They are the highest and lowest prices a stock has experienced in the past year, each of which is important.
52-week highs and lows are meaningful technical indicators that represent strong levels of support and resistance, or points at which trends will either quickly change directions or have a high-momentum breakout movement.
The dividend yield is a calculation that tells you what percentage of the stock’s price is paid back to investors via annual dividends. It’s important to note that even if a company pays dividends quarterly, dividend yields are calculated as annual percentages, accounting for all the payments expected over one year.
Trading volume relates to the number of shares trading hands. Most quotes that provide this data provide it in two forms:
- Average Daily Volume. The average daily volume of a stock is the number of shares that trade hands on an average trading day. The higher this number is, the more liquid the stock is in general. Higher volume equates to a quicker sale when it’s time for you to exit your position.
- Current Session Volume. The current session’s volume shows you how many shares have traded hands in the current trading session. Traders often compare the current volume to the average volume. Higher than average trading volume suggests high momentum and larger moves. Lower trading volume will generally translate to smaller price movements.
Stock market analysts use a mix of a stock’s past performance and other technical data as well as fundamental data surrounding publicly traded companies in order to make predictions as to where the value of a stock is headed over the next year.
These predictions are known as price targets.
Price targets shown with stock quotes are generally an average of the price targets of all analysts covering a stock. While it’s never a good idea to blindly follow analysts, buying a stock with a price target suggesting there’s significant growth potential over the next year is a sign that you’re on the right track.
(Screenshot courtesy of Yahoo! Finance)
Above, you’ll find a screenshot of an Apple (NASDAQ: AAPL) stock quote taken on August 23, 2021. As you can see, the quote provides all the basic information and quite a bit of other data you won’t find with all providers.
With this quote, you can see the stock opened at the beginning of the day’s trading at $148.31. You can also see the previous closing price was $148.19, suggesting that there wasn’t much of a gap between the day’s open and close the day before.
The quote also shows that there’s a buyer who wants 800 shares at $149.70 each (the bid) and a seller who’s willing to sell 900 shares at $149.71 (the ask). This tiny spread of $0.01 suggests low volatility, meaning the price of the next trade to execute is pretty predictable.
The day’s range outlines the highs and lows of the day. The 52-week range shows the highs and lows of the past year. By looking at these ranges, you’ll also notice that the stock is nearing its highest price experienced over the last year.
With an average volume of more than 77 million shares per day, Apple stock is clearly popular and very liquid. The current volume sitting at about one-third of the average daily volume suggests that nothing extraordinary is taking place that’s causing a buying or selling spree.
You can also see the company’s market cap is well over $2 trillion, making it one of the largest companies in the world. This suggests the stability of a blue-chip stock.
As for its valuation, the P/E ratio is just over 29. That compares favorably to averages among the tech industry. That plus a one-year price target sitting substantially higher than the current price suggests the stock is currently undervalued.
Finally, with a dividend yield of 0.59%, the income generated won’t turn any heads, but it’s always nice to add a few bucks to the bank account on occasion or to reinvest dividends back into the stock.
All told, stock quotes offer crucial tidbits of information at a glance that can be easily analyzed to determine whether you’re on the right track with a stock pick you’re interested in.
It’s important to keep in mind that quotes will be different from one trading platform to another. It’s helpful to look into the data that each platform provides before deciding which one you’ll use for your stock trading activities.