HOW I USE THE 52 WEEK HIGH-LOW RANGE OF A STOCK
There are thousands of stocks out there and it is hard to figure out what ones are poised to do well at any particular time. How most people find their stocks to buy is through reading money magazines, listening to investment programs on the radio, watching business shows on MSNBC or Fox Business, or hearing about a company through a friend. No matter how you hear about a stock, you need to then go and do a bit of research.
Whenever you look up a stock quote, you will get some basic information. One of the pieces of data that is always provided is the 52 week range of a stock, also known as the 52 week highs and lows. What do those numbers mean and how what do they tell you?
As an example, lets use the stock Netflix (NFLX) which has been in the news a lot lately. Their stock has gone up very fast for a while now as investors jump on the hottest new thing: streaming video. It is a very popular stock and if you were interested in buying some shares, you would first look it up to see what it is trading at.
As you can see in the picture below, the last price of the stock when I took that screen print was $289.85. That is the price of each share of stock so if you want to buy 100 shares you will need about $29,000. But the price of the stock alone means ABSOLUTELY NOTHING! You need to get some perspective and that is what some of the other numbers provide. The P/E ratio gives you valuable information but that is for a different post. I want to talk about the 52 week range which gives me an immediate picture of whether I might be interested in buying a stock.
In the case of Netflix, the 52 week range is shown to be $95.33 – $301.50. This means that during the last year, the stock price has been as low as that first number and it has been as high as the last number. So as you can see, the last price of $289.85 is right near the top of what that stock has been trading at for the last 52 weeks. It means that if you buy now, you will be buying near the top. The 1 year chart of NFLX can be seen below showing it’s steady upward climb.
Personally, I don’t like to buy stocks near their high points because I am afraid of paying too much and having them pull back. With a stock like Netflix, the difference between the high and low is a couple hundred points which is significant and that leaves a lot of room for it to go down. My hesitancy to purchase stocks at their highs has cost me money in my life because I have passed on some big winners like Apple and Ebay. Of course it has saved me some money as well on other stocks that turned out not to be winners.
The 52 week range tells you within seconds where the current price of a stock is compared to it’s price over the last year. If you are like me, you can then figure out whether you want to delve deeper into learning more about the stock or pass it up. Looking at a 52 week chart of the stock also helps to put the range into better perspective.
When I hear stocks recommended by analysts, I invariably find that the stocks are at or near a 52 week high. I can’t count the number of stocks I have been interested in after hearing them recommended, only to find that they were sitting at their highs. That is one of my beefs with the whole industry of stocks analysts: how hard is it to recommend stocks that are already doing well? I think anybody can do it!
