10 Metrics to consider before

investing in stocks

Investing in the stock market could be daunting, but there are certain metrics that can help you evaluate a stock, mutual fund, or exchange traded funds (ETFs).

While markets differ in size, liquidity, and sector composition, a core set of metrics can provide a consistent analytical framework across geographies and asset classes. Rather than relying on a single indicator, investors typically assess a combination of measures that together capture growth, profitability, financial strength, and market behaviour. Also, consult with a financial advisor so you can make informed decision about your investment strategy.

These are the 10 metrics you should look out for:

1. Growth
A natural starting point. For a stock, this means looking at whether revenue and earnings are increasing over time. For ETFs and mutual funds, the focus shifts to historical returns and the growth profile of underlying holdings. What matters most is consistency – steady expansion is more desirable compared to volatility in performance.

Metrics to consider: Revenue per share, total revenue, earnings per share, annual returns

2. Industry/market comparison
It’s all relative. Stocks in mature markets tend to grow more slowly, but more steadily than those in emerging markets. Also, different sectors have varying growth cycles: technology stocks tend to grow faster than those in, for example, consumer durables or established sectors. The best way to judge stocks in those sectors is the relative performance of their peers and industry average.

Metrics to consider: Industry average price-to-earnings (P/E) ratio, price-to-sales (P/S) ratio, relative return vs. benchmark

3. Valuations
Even strong companies or funds can become risky if the price is too high. Ratios such as P/E or price-to-book (P/B) offer a sense of whether an investment is expensive relative to its fundamentals or peers. Elevated valuations are not necessarily negative, but they often imply higher expectations and therefore greater sensitivity to disappointment.

Metrics to consider: P/E, P/B, P/S, price-to-free cash flow (P/FCF)

4. Quality of earnings
While it is often overlooked, the quality of earnings must also be considered. Understand whether the earnings are being derived from organic growth, through the sale of core assets, or implementation of unsustainable practices and strategies, which could lead to higher debt levels and poor outlook. A company’s track record over years, even decades, is a good indicator of the quality of its earnings.

Metrics to consider: Price volatility, three- to five-year returns

5. Dividends
For income-focused investors, dividends or distributions are an important factor. A steady yield can enhance total returns, particularly in lower-growth environments. However, unusually high yields should be approached with caution, as they may not be sustainable.

Metrics to consider: Dividend yield, dividend payout ratio, dividend growth rate

6. Debt levels
A way to assess sustainability is through debt levels. Companies with high leverage may perform well in favourable conditions, but face pressure when borrowing costs rise or revenues weaken. That could challenge a company’s ability to distribute dividends. For funds, this risk is embedded in the types of companies or sectors they hold. Remember that debt affects liquidity. Investors should look at strong cash flows, which reflects the actual cash generated by a business after expenses. Strong and consistent cash flow provides flexibility – for reinvestment, debt repayment, or shareholder returns – and is often seen as a sign of underlying resilience.

Metrics to consider: Free cash flow, P/FCF ratio, debt-to-equity ratio (D/E)

7. Cost of investment
For individual stocks, costs are typically limited to transaction fees and the bid-ask spread – the difference between buying and selling prices. For ETFs and mutual funds, however, costs are ongoing and embedded in the structure. Investors may also consider the total expense ratio (TER), which captures additional administrative costs.

Metrics to consider: Expense ratio (or management expense ratio), TER, bid-ask spread (for ETFs)

8. Diversification

This is more about an individual investor’s portfolio risk levels. Most advisors would suggest spreading risk across stocks, sectors, markets, and asset classes. Within a single market, there is room for spreading the risks. A single stock is inherently concentrated, whereas funds offer varying degrees of diversification. Metrics such as the number of holdings and top 10 concentration help assess how balanced a portfolio is. A fund with hundreds of holdings may still be heavily weighted toward a few large positions. Sector allocation and geographic exposure are also important, as overexposure to one industry or region can increase vulnerability to specific shocks. Effective diversification is not just about quantity, but about how differently the underlying assets behave.

Metrics to consider: Sector allocation or geographic exposure, top 10 concentration

9. Strategyand fit

Investment should align with an investor’s objectives. Some investments prioritise growth, others income or value, while many ETFs and mutual funds track specific indices or themes. Relevant metrics include benchmark alignment, which shows what the fund is trying to replicate or outperform, and tracking error, which indicates how closely it follows that benchmark. For active funds, active share can help determine how distinct the portfolio is from the index. The key question is whether the strategy matches the investor’s time horizon, return expectations, and tolerance for volatility.

Metrics to consider: The investor’s long-term investment goals

10. Risk profile
Finally, risk profile captures the level and type of uncertainty associated with an investment. Investors nearing retirement are typically advised to avoid risks and focus on stable stocks, bonds, and less risky sectors and assets, compared to those who are younger and can absorb market fluctuations over decades.

Metrics to consider: The investor’s risk profile