How to Read and Understand a Share Chart

Updated 1 May 2021

If you’re new to investing, our guide explains the data presented in share charts. While a share chart isn't the only resource you should use, it will assist you in making a more informed investment decision about whether or not to buy shares in the company. In this guide, we cover:

• What's in a Share Chart?
• Understanding the Elements of the Share Chart
• Essential Non-Financial Considerations (and other important things to know)
• Final Thoughts
  

Please note: The companies mentioned in this guide are illustrative only and in no way constitute financial advice. Investing is risky and you may lose up to all of your original investment.

Whether or not you’re using the NZX, Google Finance or Yahoo Finance, share charts have a similar look and feel to them - i.e. they all have a graph and numbers. While the graph shows the share price over time, the numbers are where the detail is. To understand what these mean, it’s best to work through an example, step by step.

Let’s look at Air New Zealand using Google Finance (as illustrated in the above chart). Its ticker symbol is AIR, which will be the same on any sharemarket tool you use (so you can look up its prices by entering in 'AIR' in Yahoo Finance, the NZX and more). In this example, we've used data from 17 April 2020 to explain the important numbers on the share chart.

​Open: This is the price the share first traded at when the sharemarket opened. For example, at 10:30am, the first trade occurred at a price of $1.33.

High: This is the highest price the share reached within the day. It changes multiple times per day, especially if the share is volatile. During the day, someone bought shares for $1.61 around 3pm.

Low: The is the lowest price in the day, and like ‘High’, it can change multiple times per day. $1.27 trades occurred around 4pm in this example.

Bid/Ask: Why Google Finance doesn't show this, many share platforms do. The bid is what buyers are willing to pay for a share, whereas the Ask is what sellers will be prepared to sell for. The price moves based on the laws of supply and demand; more demand for a share will cause it to rise etc.

Mkt cap: This stands for market capitalisation. It’s the current share price multiplied by the number of shares issued. As the share price rises, the Mkt cap increases as the company is worth more, and vice versa. Mkt cap is what determines the biggest companies in a sharemarket. For example, the NZX50 is the fifty largest shares by market capitalisation. If a share price falls from say $1 to 10 cents, the market capitalisation will fall by the same proportion.

P/E ratio: This stands for price over earnings ratio. In Air New Zealand's case, it is 6.72. However, this assumes that the company will report similar profits in the short to medium term (which, due to COVID-19, is unlikely). To explain P/E ratio in detail, let’s take a simple example. If the share price is $10, and the company’s most recent earnings-per-share was $1, then the P/E ratio is 10. Earnings per share is the amount of net profit after tax each share earns. For example, if the net profit after tax was $10 million, and there were 10 million shares, then the EPS is $1 ($10 profit/10 million shares).

• Generally, a high P/E ratio could mean that a company's stock is over-valued, or else that investors are expecting high growth rates in the future. An example of high P/E ratio companies are A2 Milk (P/E ratio around 50) and Xero (P/E ratio 4,300). Both of these companies have been viewed as high-growth companies, meaning investors expect their profits to grow year after year going forward.
• Many companies have no earnings or are loss-making. If this is the case, they won’t display a P/E ratio given there are no earnings to put in the denominator. Low P/E companies, for example, those between 1 and 7, may be distressed. For example, they may have had a profit in the past but had a business event that means they’re unlikely to be profitable in the future. Because of this, the share price has fallen. 
• In the Air New Zealand example, we see a P/E of 6.72 during the start of the COVID-19 crisis. This reflects the fact that investors don’t have confidence in Air New Zealand being profitable in the near future. As the share price falls, so does the P/E ratio.

Div yield: This is the dividend yield which is a percentage measure of how much the company pays its investors in dividends based on today’s share price. The higher the dividend yield, the higher the return on your investment. It’s calculated from dividing the annual dividend by the share price.

• For example, if a company declared a dividend of $1 per share and the share price is $10, then the Div yield would be 10%. In the case of Air New Zealand, the 16.79% Div yield suggests a high rate of return based on the current price. However, this is not the case – a dividend is a static number that only changes every six months (at the most). If the share price drops, then the Div yield rises. If no dividend is declared in the next earnings announcement, the Div yield number will be 0.
• The dividend yield in the case of Air New Zealand is not accurate given the company has no cash and is restructuring. For this reason, investing at the current price (depicted above) as little likelihood of providing a 16.79% dividend.
• In Australia, many investors push companies to pay dividends even if they are short of cash and have to borrow later on. This arguably affects the long-term growth of the company if it's continuously paying out cash and borrowing rather than re-investing in productive assets. New Zealand investors don't tend to do this, but it is something to be aware of if you're investing in the ASX.
• In summary, dividend yields are not something to base a share purchase on if the price is volatile. Historically, dividend yield shares have included property companies which consistently collected rents from tenants and paid out dividends to the investors, as well as infrastructure companies like Auckland Airport. COVID-19 has changed that and investors need to be more analytical when investing.

Prev close: This is the price the share closed at the day before. In the Air New Zealand chart, it is $1.32. It’s not necessary the following day's opening price, as buyers may offer more or less than the closing price the following day. In this case, the share opened at $1.33. 

52-wk high and 52-week low: This is the lowest and highest price the share has closed at during the last year. It’s helpful so investors can compare its low and high-point with where it is currently priced. For example, if the 52-week low and high were $1.00 and $2.00 respectively, and the current price is $1.10, you’d be buying at a relatively low point in its recent history. In Air New Zealand's case, between 18 April 2019 and 17 April 2020, the lowest price the share closed at was 80 cents and the highest $3.05.

The current trading price is listed on the top underneath the ticker symbol. On this chart, Air New Zealand is currently trading at $1.31. The (-0.005) (-0.38%) listed to the right of the price indicates the dollar change and percent change since the previous day’s closing price, which was half a cent.

You can view different periods, with '1 day' the standard among the NZX, Google Finance etc. For further details, click on 5 days, 6 months, YTD (year to date), 1 year, 5 year and Max (which is all the price history since the share listed on the share market, or as much as Google Finance has for shares that pre-date Google). The charts help you see if the share is trending up or down, and at what rate.