Intermediate — fundamental analysis (EPS, P/E, ROE), technical basics, sector-specific factors (banks, hydropower, insurance)

Nepal Stock Market, Level 2: How to Actually Analyze a Company Before You Buy

So you've opened your DEMAT and TMS accounts, maybe applied for a couple of IPOs, and made a trade or two. Good — that's the easy part. The harder (and more important) skill is learning how to judge whether a share is actually worth buying at its current price. This blog covers that, in plain language.

The two ways people analyze stocks

1. Fundamental analysis

This means looking at a company's actual business and financial health — is it making money, growing, and well-managed?

2. Technical analysis

This means studying price charts and trading patterns to guess where the price might go next, based on historical behavior.

Most serious investors in Nepal use a mix of both. Let's break each down.

Fundamental analysis: the basics

Where to find company data

The company's annual report and quarterly financial reports, usually published on their website or on NEPSE's website

Merolagani and ShareSansar — two popular Nepali financial portals with company data, ratios, and news

The company's disclosures to NEPSE and SEBON (Securities Board of Nepal, the regulator)

Key numbers to check

Earnings Per Share (EPS)

This tells you how much profit the company made per share. Higher and growing EPS over several quarters is generally a good sign.

Price to Earnings ratio (P/E ratio)

This is the share price divided by the EPS. It tells you how expensive a share is relative to its earnings. A very high P/E compared to similar companies in the same sector might mean the share is overpriced (or the market expects strong future growth) — always compare within the same sector, since banks, hydropower, and insurance naturally trade at different average P/E levels.

Net worth per share / Book value

This shows the accounting value of the company per share. Comparing the market price to book value (called Price to Book, or P/B) helps you judge if a share is trading at a premium or discount to its actual net worth.

Dividend history

Look at how consistently a company has paid dividends (cash or bonus shares) over the past several years. Consistency often signals stability.

Return on Equity (ROE)

This measures how efficiently a company uses shareholders' money to generate profit. Generally, higher and more stable ROE is preferred, though it should be compared to sector peers rather than judged in isolation.

Sector-specific things to check in Nepal

Banks and financial institutions: Look at Non-Performing Loan (NPL) ratio (lower is better), Capital Adequacy Ratio (CAR — must meet Nepal Rastra Bank requirements), and loan growth.

Hydropower companies: Check installed capacity, whether the plant is operational or under construction, Power Purchase Agreement (PPA) terms with the Nepal Electricity Authority, and seasonal water flow effects on generation (dry season vs. monsoon).

Insurance companies: Look at premium collection growth, claim settlement ratio, and solvency margin.

Hotels and manufacturing: Look at occupancy rates or capacity utilization, and how sensitive the business is to tourism trends or import costs.

Technical analysis: the basics

Technical analysis uses price charts to spot patterns. You don't need to become a chart expert immediately, but a few concepts are worth knowing:

Support and resistance

Support is a price level where a stock has historically stopped falling and bounced back up.

Resistance is a price level where it has historically struggled to rise above.

Moving averages

An average of the closing price over a set number of days (e.g., 50-day or 200-day moving average), smoothed out to show the overall trend direction rather than daily noise.

Volume

The number of shares traded in a day. A price rise on high volume is generally considered more meaningful than a price rise on very low volume.

NEPSE Index trend

Watch the overall index trend (bullish, bearish, or sideways), because individual stocks are often influenced by the broader market mood, especially in Nepal where retail sentiment plays a large role.

Reading market sentiment in Nepal specifically

The Nepali market has some unique characteristics:

Retail-driven: A large portion of trading volume comes from individual retail investors rather than institutions, which can make prices more sentiment-driven and volatile.

News and rumor sensitivity: Prices can move sharply on rumors, budget announcements, Nepal Rastra Bank monetary policy, or interest rate changes.

Liquidity varies widely: Some companies trade heavily every day; others barely trade at all. Always check average daily trading volume before buying, so you know you can exit later if needed.

Circuit breakers: NEPSE has daily price movement limits (circuit filters) which can prevent a stock from moving beyond a certain percentage in a single day.

Building a simple evaluation habit

Before buying any share, try answering these five questions:

What does this company actually do, and how does it make money?

Is its EPS growing, shrinking, or flat over the last 3–4 quarters?

How does its P/E compare to similar companies in the same sector?

Has it paid consistent dividends?

Is there enough daily trading volume that I could sell later without difficulty?

If you can't answer at least three of these confidently, it's worth doing more research before investing.

Portfolio basics: don't put all your eggs in one basket

Spread investments across a few sectors (e.g., banking, hydropower, insurance) rather than one.

Decide in advance roughly how much of your total capital you're willing to risk on a single company.

Keep a simple record of what you bought, at what price, and why — this becomes incredibly useful for learning from your own decisions later.

What's next?

Once you're comfortable reading financial statements, comparing ratios, and understanding market behavior, the final step is developing an actual long-term strategy: position sizing, risk management, tax and regulatory rules, and how experienced investors in Nepal structure their portfolios over years, not days. That's what the third and final blog in this series covers.

Disclaimer: This article is for educational purposes only and is not investment advice. Always do your own research or consult a licensed professional before investing.