Best Tools for Binary Option Fundamental Analysis

Best Tools for Binary Option Fundamental Analysis

Submitted by adil on Sun, 10/26/2014 - 07:44

There are many tools that can make fundamental analysis the best way to ensure the trader makes profits with his binary option trading. Every trader should use some or all of the following tools to determine his future plans.

Efficient tools:

Earnings per share (EPS): This comparison tool can give you an idea how one company is performing with respect to the performance of another company in the same industry. This tool does not signify whether buying a stock in the better company will bear any profits.

Formula: EPS = Net Earnings / Outstanding Shares

For example: Company A made $100 earnings with a total 10 outstanding shares (EPS = 10) while Company B earned $100 with 50 outstanding shares (EPS = 2). Company A is performing better than the Company B.

Price to Earnings Ratio (P/E Ratio): This ratio indicates how the market is evaluating a company’s current performance. The higher the P/E, higher the market is willing to pay for the company’s earnings. A very high P/E can also indicate an overpriced stock, but ideally it is an indication the market has bid up the price because of expectations about a profiting future regarding the company’s stocks. A low P/E either means the market has no confidence in the company or it an overlooked potential.

Formula: P/E = Stock Price / EPS

Example: A company with a stock price of %50 and an EPS of 10 will have a P/E = 5.

Projected Earnings Growth (PEG): This ratio gives an idea how much the company earnings are expected to grow within a definite time period, usually considered in years.

Formula: PEG = Price per Earnings / (projected growth in earnings)

Example: A stock with a P/E of 30 and a 15% expected growth in earnings the next year will have a PEG = 2. A trader should only be interested in a company with high P/E if the PEG is also very high.

Price to Sell (P/S): This ratio gives an idea how much will it cost to sell the stocks when the chips are down. Ideally, the P/S should be as low as possible. But this ratio is not to be used discretely, the trader should use other tools in combination with this one to determine a more accurate inference.

Formulae: P/S = Market Cap / Revenues OR P/S = Stock Price / Sales Price per Share

Example: A stock with a stock price of $50 and a sales price per share of $5 has a P/S of 10. The higher the P/S, the higher can be the losses in case the stocks are not able to provide any profits.

There are even more tools that traders can use to expand their fundamental analysis. In the next part of this article, discussion will further continue on other important fundamental analysis tools that can greatly help in binary option trading.