The interpretation of company results is a big subject which is covered in a separate course. Fortunately, much of what you need to extract from company results is common sense, and best winkled out by asking the following questions:
If you get the answers to these questions from the results, and then read what the brokers and financial journalists have to say about the company, you should form a pretty good idea about whether this is a company that you want to have in your portfolio.
Be aware, though, of 'broker speak'. Brokers make their money from commissions on client trading, and they do best when share prices are high and the market is active. As such, they have an interest in being bullish.
| Broker says | Broker means |
|---|---|
| Strong buy | Buy |
| Accumulate | Consider buying |
| Buy | Hold |
| Hold | Consider selling |
| Sell | Sell! |
You will also see brokers using the words 'undervalued', 'overvalued', 'reduce', 'neutral', 'accumulate' and a variety of others.
US ratings tracker First Call has estimated that of 28,000 analyst recommendations on 6,900 US and Canadian companies, a third are rated strong buy, a third buy, a third hold, and less than 1% sell. Most UK brokers issue far, far more buy recommendations than they do sell recommendations. In some cases there may be a conflict of interest in that the broker also acts as adviser to the company. More usually, it's just a case of brokers preferring to be upbeat about companies and the market than downbeat.
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