When should you sell your stock

A lot of people have doubts about when they should sell their stock. Some traders try to examine stock prices to define the best time for selling a stock, while others monitor news and sell when they see negative company mentions. In today's article, let's dive deeper into some of the valuable indicators that can give you valuable hints on when to sell stocks. We will consider some of the most important indications that will give you a strong sell signal. This article is useful for short-term traders who want valuable hints on when to sell stocks and long-term traders who don't understand when to get rid of their stock. I will also show how to extract valuable financial data that will level up your analysis and trading game.

Gross/Operating Margin. Gross margin shows how much profit remains after deducting a company's direct/indirec costs. For example, a gross margin of 60% would mean that for each $1 of sales, the company is making 60 cents in profit after deducting direct costs. Operating margin also considers indirect costs. If the company has higher direct costs, use Gross Margin, and if it has higher indirect costs, Operating Margin can be useful. Gross/Operating margin should be stable and should not vary greatly. If you see huge fluctuations in margin from year to year, this means that the company is having problems controlling its costs. Less control means less predictability, and you should avoid companies with volatile margins. Probably 3-4% margin fluctuations are okay, but anything above that can be considered abnormal. For example, if a company's margin is 60% in year 1, 70% in year 2, and then 40% in year 3, this is not normal behavior—it means that unusually high costs are disturbing the company's business. Margin should also be compared to the company's closest peers. Choose the company with the highest Gross/Operating margin, as this would mean that it is making more money from each unit or product sold after deducting its direct or indirect costs. To calculate Gross Margin, you need to extract Revenue and Cost of Goods Sold (COGS) from the Financial Modeling Prep Income Statement API endpoint. Then deduct COGS from Revenue and divide this number by Revenue.

WACC and ROIC. WACC stands for the Weighted Average Cost of Capital and shows what costs the company is bearing on its attracted funds. It is calculated as the weight of the debt multiplied by the cost of the debt plus the weight of the equity, multiplied by the cost of equity. ROIC, on the other hand, shows the return on attracted funds, calculated as net operating profit after tax divided by attracted funds (stocks, bonds, bank borrowings). WACC can be found in the Financial Modeling Prep Advanced DCF API endpoint, and ROIC can be found in the Financial Modeling Prep Key Metrics TTM API endpoint. Your selected company should have ROIC higher than WACC, indicating that it is making profits on its attracted funds. You should also compare the ROIC/WACC ratio to the closest peers. If your selected company has the highest ratio among closest peers, it means that it is using its attracted funds efficiently.

EPS Surprise. EPS stands for Earnings Per Share. It is calculated as net income divided by shares outstanding and shows how much of net income the company is making for each of its stocks. Analysts regularly issue EPS forecasts, and if a company posts EPS data (actual EPS) lower than analysts' expectations, this can be a worrying sign. But don't pay attention to only one reporting period. Sometimes companies miss analysts' expectations, and it's not a big tragedy. However, you should start worrying if the company consistently misses analysts' expectations for 3-4 quarters in a row, and actual EPS always comes in worse than analyst expectations. This can signal that the company is not stable and that analysts cannot forecast its financials accurately. Also, when a company regularly misses estimates, analysts may start lowering its target price soon. A decreased stock target price will have a negative effect on its market price as traders may start selling the stock. For EPS analysis, you need to extract EPS historical data and then build a calendar to track a company's actual vs. estimated EPS data. You can also monitor various websites that provide EPS actual and forecasted data. If you want to extract company EPS data manually you can use the Financialm Modelimg Prep Earnings Historical API endpoint.

Free Cash Flow. Companies have three main sources of cash inflow and outflow: operating activity (main company activity), investing activity (purchase of plant or equipment), and financing activity (borrowed money or repaid interest, for example). All these sources have cash inflows and outflows. For example, if the company is generating money from its main business activities, excluding financing and investing activities, then we will see cash inflow from operating activity. The same applies to investing and financing activity. For cash movements, you need to examine the company's cash flow statement. At the end of the cash movements, we have free cash flow. This is the amount of money left in the company after cash inflows and outflows from all three activities: operating, investing, and financing. If your selected company has positive free cash flow, it means that the company is generating free money; if the cash flow is negative, it means that the company has no free cash left at the end of the reporting period. It may use the free cash to buy plants or equipment or allocate it to research and development. You should pay attention to free cash flow over time, from quarter to quarter. Stable or constantly increasing cash flow means that the company has cash left at the end of the reporting period. This cash can be used to pay higher dividends, repurchase more shares from the market, or other incentives to support investors. It can also go to the capital as retained earnings. The more free cash flow a company has, the higher its stock target price will be, as analysts use FCF as a basis in the Discounted Cash Flow (DCF) equity valuation model, and they forecast a company's FCF. That's why positive FCF dynamics and higher stability would mean that analysts will definitely reflect it in their analysis, and there is a high probability that they will increase the stock target price in their next review. This may give a significant boost to the stock market price at some point. FCF can be extracted from the Advanced DCF API endpoint.

Social Sentiment. Social sentiment is derived from social media, where positive and negative mentions of the company are counted. If the sentiment is above 0.6, it means that the company has more positive mentions, and the stock price may go upwards as soon as other traders notice the stock and its positive sentiment. Monitoring social sentiment can help you get ahead of the market and buy interesting, value stocks before other traders. Social sentiment data can be extracted from the Sentiment API endpoint.

Stock Target Price Dynamics. Analyze the consensus stock target price (average target price) over time and see how it has changed from last year, for example. A constantly declining stock target price may indicate that investors are becoming skeptical about further company growth prospects or that the company's costs are skyrocketing. A declining stock target price is a worrying sign, but it should also be considered with other indicators for more accurate conclusions. On the other hand, a constantly rising stock target price indicates that investment analysts are optimistic about the company's future growth and expect shares to go up. If that company's stock price hasn't gone up yet, this may happen soon as other investors start noticing the company. Also, pay attention to how many investment analysts calculate stock target prices for that company. Their prices may vary greatly, but there should be a lot of investment analysts from different investment banks. If your selected company only gets coverage from 2-3 analysts, its consensus target price will not be representative, and it's not a good idea to use it as a strong indicator. But if the company has coverage from 20 different brokerage companies, you can rely on that consensus target price, compare its dynamics on a one-year scale, and use it as a strong indicator. Stock target prices calculated by different investment analysts can be extracted using the price target summary API endpoint.

Changes in Company's Strategy. Sometimes, changes in a business model can bring higher uncertainty, which can result in higher costs, lower revenues, and lower forecasting accuracy, especially if the company was successful with its old business model. Also, changes in the company's market share or the appearance of new strong players in the market can motivate traders to decrease the weight of that stock in their investment portfolio or substitute it with a new company from the same industry that looks better fundamentally and has higher stability from a financial standpoint.

Stock Trading Parameters Changed. If a stock becomes more volatile, starts trading with gaps, trading volumes drop, or it begins trading flat and then opens with large gaps or large candles when company-related news comes out, these are good indications for selling the stock. If you keep it in your investment portfolio, it will break your desired return/risk expectations, and your portfolio will stop being efficient. Moreover, your risk will skyrocket. To monitor stock trading parameters, you may use the live full price API endpoint.

These are some of the most important indications you should pay attention to if you want to know the best time to sell your stock. However, please use these indicators together or at least 3-4 of them simultaneously. You can also combine them with technical analysis and financial ratios analysis. This will increase the accuracy of your analysis and help you determine the best time to sell your stock.