More often than not, investors look at the same basic information when checking stock quotes. Other than looking at the price, many people check the dividend yield, and maybe even check out the price-to-earnings ratio.
However, this isn't really enough to make an informed investing decision and let you know what you're really getting into when buying a certain stock. And, as you can see from this screenshot of an Apple stock quote from TD Ameritrade, there is a lot more information contained in a stock quote.
Here are three numbers you need to start paying attention to and what they mean to you.
The beta is a great measure of how well you'll be able to sleep at night after you invest in a stock. More specifically, the beta tells you how reactive the stock is to market movements.
If a stock has a beta of less than one, that stock is less reactive (volatile) than average. For instance, a beta of 0.5 means that the stock is half as reactive to market events or other headwinds as the S&P 500 is. If the S&P declines by 10%, you can expect to lose just 5%. Solid dividend-paying stocks with a long track record of growth generally fall into this category, and a few examples are Procter & Gamble, Colgate-Palmolive, and Johnson & Johnson.
On the contrary, a beta greater than one means that you can expect an above-average amount of volatility from the stock. Your investment may still perform nicely over the long run, but you can bet there will be some bumps along the way. For example, First Solar's beta of 1.9 means that if the market moves by 1%, you should expect your shares to move by 1.9%. The more speculative growth stocks tend to fall in this category.
As the name implies, this tells you the range of prices the stock has traded for over the past year. And, an effective way to use it is actually somewhat counterintuitive.
For example, let's say that a stock is trading for just pennies above its 52-week low. Well, your gut instinct might tell you that shares are very cheap right now and it must be a good time to buy. However, companies like this are normally cheap for a reason, and have even further to fall.
A good example of this right now is the materials sector, such as coal and iron ore stocks like Walter Energy. Currently, the stock is trading for $1.75 per share, more than 90% below its 52-week high. However, the company is facing some serious liquidity issues and analysts expect the company to hemorrhage money for the foreseeable future.
So, while there is indeed a chance the company will turn around and reward shareholders, this is definitely one stock that is cheap for a reason.
Short interest can be very useful because it can give you a good idea of whether or not the public believes there is something wrong with the stock at its current price. A high short interest should definitely set off an alarm in your head, or at least be a reason for further inquiry.
As an example, the aforementioned Walter Energy has a short interest of more than 60% as of the latest data. In other words, out of the 65.8 million outstanding shares in the company, nearly 40 million of them are currently sold short.
This goes back to my "cheap for a reason" argument in the last section. Sure the price is low, but there are an awful lot of people who seem to be willing to bet that the worst is yet to come.
In contrast, Apple has a short interest of just over 2%, which conveys a general level of confidence by investors. Johnson & Johnson is even lower at just 0.77%, meaning there is hardly anyone willing to bet money that the stock has any significant downside ahead.
How to use these numbers
To sum it up, looking deeper into the numbers listed in stock quotes can tell you whether or not a stock is truly a bargain, or if it's simply cheap because the company is "broken."
The more you know about what you're looking at, the stronger your investment decisions will be. And mastering the interpretation of these three figures is an excellent place to start.
Matthew Frankel has no position in any stocks mentioned. The Motley Fool recommends Apple, Johnson & Johnson, Procter & Gamble, and TD Ameritrade. The Motley Fool owns shares of Apple, Johnson & Johnson, and TD Ameritrade. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.