How To Buy H&M Stock

Swedish retailer H&M (OTCMKTS:HNNMY) is the second largest fashion retailer in the world.
In addition to being a household name in the clothing industry, H&M is also a publicly traded company. If you’re considering investing in H&M, though, there are a few things you need to keep in mind.
Here are three crucial questions you need to answer before you decide to buy H&M stock.

Will H&M’s Stock Go Up?

The first and most important factor in deciding whether to buy a stock is its potential as an investment.
In order to be a good investment, a stock should be able to produce strong growth, stability, income or some combination of the three. When analyzing a company as an investment, it’s important not to focus too much on name recognition, price history or your experience with that company as a consumer.
H&M is an excellent example of the fact that businesses you buy from as a satisfied customer aren’t necessarily good investments. Over the last several years, the company’s stock has largely languished.
In 2012, H&M sold for more than $6 per share. Today, the price is approximately $3.60. Given the returns that other companies and indices have produced during the same period, an investor would have been far better to have his or her money elsewhere.
With that said, past price history also offers no guarantee of future performance. In order to truly understand a company’s value, you should learn the basics of financial analysis. Investors use financial metrics provided by companies to gauge their overall value and their future growth potential. 
Out of 26 current analyst ratings, 14 classify H&M as a buy. Meanwhile, 6 suggest holding and 6 more categorize the stock as a sell. The company is also down by over 11 percent to date this year.
Overall, while H&M may offer value in the long-term, its nearer-term potential for gains seems limited.

Is H&M A Fit For Your Portfolio?

Before purchasing any individual stock, you need to know how it will fit into your broader portfolio.
Even very attractive stocks can be the wrong choice if they don’t work well with the rest of your holdings. By having a plan and a goal for every stock you purchase, you can tailor your portfolio to produce the results you want.
The right stocks for you will depend on your personal financial goals. If you’re looking to generate high returns, riskier growth stocks will likely have a prominent place in your portfolio.
On the other hand, if you’re closer to retirement and looking for cash flow from your portfolio, an income strategy focused on dividend-paying stocks will be more suitable.
Selecting an investment strategy that is right for your needs is essential to meeting your goals when purchasing stocks.
H&M, for instance, doesn’t pay dividends or have significant hopes of achieving rapid growth. It could, however, still have a place in an investment portfolio. For example, investing in H&M stock could be a decent option for investors seeking slow, steady growth over longer time horizons. Before you buy H&M, be sure that it fits with your investment strategy and makes sense in your portfolio.
When considering how a stock will fit into your portfolio, you also need to keep diversification in mind. A portfolio that’s properly diversified will protect you from taking on too much risk in any one area.
Ignoring diversification, on the hand, may leave you open to unacceptably high losses. If you haven’t developed a comprehensive diversification strategy yet, you can buy shares of low-cost index funds. These funds contain several stocks across multiple sectors, allowing you to instantly diversify your holdings.

How Much Should You Invest in H&M?

When choosing individual stocks, it’s important to keep portfolio risk in mind. Putting too much of your capital into any single stock could result in unacceptable losses if that stock’s value drops.
While asset allocation is based on a number of factors, a good rule of thumb to follow is to invest no more than 5 percent of your portfolio’s total value in any one asset. As an example, a portfolio worth $150,000 should only contain $7,500 worth of any individual stock.
The amount of a stock you purchase also depends on your goals and your reasons for buying it. If you’re pursuing a growth investing strategy, buying a high-growth tech stock up to the 5 percent limit may be a sensible choice. If a stock is meant to provide stability and hedge against risks elsewhere, though, you may decide to buy a smaller amount.
Before you decide to buy H&M or any other individual stock, you should also make sure your personal finances are in order. An emergency fund of 3-6 months worth of expenses will help you ride out unexpected costs that come up in day-to-day life.
You should also pay off any high-interest debt you may have before you begin investing. Rates on car loans or credit cards are often higher than what you would make in the stock market in any given year. As a result, retiring these debts can actually produce better returns than buying stocks.
Once you’ve answered these three questions, you’ll be able to make a more informed decision about whether or not to buy H&M stock. Use these same questions to gauge all individual stock purchases you may be considering. If you know a stock’s investment potential, its place in your portfolio and how much money you should put into it, you’ll be able to make sensible investing decisions that are in line with your financial goals.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.