Your investments in the stock market can generate profitable returns if you make your investment decisions based on facts and after proper research. This research entails assessing a company’s strengths, shortcomings, and future potential before purchasing its shares. While there are numerous tools for evaluating a firm, SWOT analysis for stocks is a well-known method to provide helpful information about a company’s prospects.
SWOT analysis stands for Strengths, Weaknesses, Opportunities, and Threats, and is a qualitative study tool for analysing the internal and external environment of a company that impacts its performance. When done effectively before investing, SWOT analysis for stocks can enable you to comprehend the competitive advantages and disadvantages of a company and thus, make an informed investment decision.
Why conduct a SWOT analysis before investing in stocks?
SWOT analysis is one of the most basic yet effective tools for analysing a stock qualitatively. It helps identify a company’s strongholds and challenges and predict its future performance accurately. Moreover, it facilitates the discovery of long-term competitive advantages and disadvantages to help you keep your investment secured in the future.
How to conduct a SWOT analysis for stocks?
You can do a SWOT analysis of NSE stocks, and any other stocks really, by analysing the following components:
Depending on the industry, a company’s strengths differ. A banking company’s strength, for example, can be its low Non-Performing Assets (NPA). In contrast, a low-cost supplier might be a significant advantage for an automotive manufacturer. While conducting a SWOT analysis for stocks, you can consider factors like financial stability, cost advantages, repeated clients, customer loyalty, considerable brand recognition, scalable business model, and skilled workforce.
The opposite of everything covered under the ‘Strengths’ section can be called a company’s weaknesses. Poor financials, inefficient management, poor brand recognition, an inexperienced workforce, a non-repetitive customer base, an unscalable firm, and disloyal customers are just a few examples of shortcomings. Furthermore, the company may have other issues such as a lack of money, outdated technology, or even heavy debt.
A business with many possibilities has the potential to succeed and create future profits. While evaluating the opportunities for a company, you can keep relaxed governmental regulations, new technology changes, vertical or horizontal expansion, and growth opportunities in mind.
One of the constant threats that many industries confront is changing consumer tastes and preferences. If no appropriate action is taken to keep the customer, the company’s profitability may suffer. A firm needs to examine its threats to survive and, more importantly, to remain profitable. Two other significant threats to a firm are unfavourable government laws and industry competition.
Conducting a SWOT analysis of BSE or NSE stocks is neither easy nor difficult; it is simply time-consuming. You can turn to a financial advisor who can help you decide which stocks to buy today since their expertise involves using tools like SWOT and other technical analysis to align your investments with your financial goals.