How to analyze a stock: a practical 7-step checklist

Most bad stock decisions are not caused by missing information. They are caused by looking at the wrong information in the wrong order, usually starting with a price chart and a strong feeling. A checklist fixes the order. It will not make every trade a winner, but it makes it much harder to buy something you do not understand.

This is the seven-step process we use as the backbone for Kairon's analysts. You can do it by hand in about an hour per stock, or use it to check an AI-generated analysis for gaps.

1. Understand how the company makes money

Write one sentence that answers: who pays this company, for what, and why do they keep paying? If you cannot write it, stop here.

Then look at the revenue split. A company that earns 80 % from one product or one customer has a very different risk profile from one with ten balanced segments. Note where growth comes from. Growth from price increases, new customers and acquisitions each carries different risks.

2. Check the numbers that are hard to fake

Earnings can be shaped by accounting choices. Cash is harder to dress up. Look at five years if you can:

• Revenue growth: steady, accelerating or slowing?
• Gross and operating margin: are they stable or shrinking under competition?
• Free cash flow: operating cash flow minus capital expenditures. Does it roughly follow net income, or is there a growing gap?
• Balance sheet: net debt relative to cash flow, upcoming maturities, share dilution from stock-based pay.

A company can report rising profits while its free cash flow falls for years. That gap is where many blow-ups start.

3. Put the valuation in context

A P/E ratio of 40 is neither expensive nor cheap on its own. Compare it with three things:

1. The company's own history (is it at the top of its range?).
2. Direct competitors with similar growth and margins.
3. The growth rate the price implies. If the market price only makes sense with 25 % growth for ten years, write that down and ask whether it is realistic.

Use more than one metric. For unprofitable growth companies, price to sales and the path to positive free cash flow matter more than P/E. For banks and insurers, price to book and return on equity are more meaningful.

4. Read the trend and the key levels

Even long-term investors benefit from knowing where a stock sits in its trend, because it affects timing and risk:

• Is the price above or below its 200-day moving average?
• Where are the obvious support and resistance zones, the areas where the price has turned several times?
• Is volume rising on up days or on down days?

You do not need to become a chartist. You need to know whether you are buying into strength, catching a falling knife or chasing a stock that is far above any support. See technical vs. fundamental analysis for how to combine the two.

5. Scan news, events and sentiment

Check the calendar before the chart. An earnings report next week can move a stock more than a year of slow fundamental change. Look for:

• Earnings dates, product launches, regulatory decisions, index changes.
• Guidance changes and how the stock reacted to the last two reports.
• Sentiment extremes. When everyone on social media agrees, much of the good news may already be in the price.

6. Write the bear case, seriously

This is the step almost everyone skips, and the one that saves the most money. Take the same facts you used for your bull thesis and argue the other side as well as you can:

• What would have to happen for this stock to fall 30 %?
• Which of your assumptions is the weakest?
• What would a smart short seller say about this company?

If you cannot find a credible bear case, you have not looked hard enough. We wrote a separate guide on building a bull and bear case, because this single step is where Kairon's debate between a bull agent and a bear agent comes from.

7. Decide your plan before you buy

A thesis without a plan is a hope. Write down, before the order:

The size of the position follows from the stop, not from how confident you feel. The position size calculator does the math.

How AI changes this process, and how it does not

AI tools are good at the tedious parts: pulling financial data, summarising news, checking technical conditions and, most usefully, writing a bear case you did not want to write yourself. They are not good at knowing things that are not in the data, and they can sound confident while being wrong.

Use an AI analysis the way you would use a colleague's research note: read the reasoning, check the numbers you care about, and pay most attention when it disagrees with you. If you want to see what that looks like, the free analysis below runs all seven steps with separate agents and a bull/bear debate.

Quick checklist

1. One-sentence business model.
2. Five years of revenue, margins, free cash flow, debt.
3. Valuation vs. history, peers and implied growth.
4. Trend, 200-day average, support and resistance.
5. Upcoming events and sentiment.
6. A bear case you take seriously.
7. Entry, invalidation, stop, size and time frame written down.

This guide is educational and not investment advice.